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[Senate Hearing 106-611]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 106-611

                  CLEAN AIR ACT: REVIEW AND OVERSIGHT

=======================================================================

                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON CLEAN AIR, WETLANDS,
                  PRIVATE PROPERTY, AND NUCLEAR SAFETY

                              COMMITTEE ON
                      ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 14, 1999

                               __________

  Printed for the use of the Committee on Environment and Public Works

_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402
?

               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                       ONE HUNDRED SIXTH CONGRESS

                 JOHN H. CHAFEE, Rhode Island, Chairman
JOHN W. WARNER, Virginia             MAX BAUCUS, Montana
ROBERT SMITH, New Hampshire          DANIEL PATRICK MOYNIHAN, New York
JAMES M. INHOFE, Oklahoma            FRANK R. LAUTENBERG, New Jersey
CRAIG THOMAS, Wyoming                HARRY REID, Nevada
CHRISTOPHER S. BOND, Missouri        BOB GRAHAM, Florida
GEORGE V. VOINOVICH, Ohio            JOSEPH I. LIEBERMAN, Connecticut
MICHAEL D. CRAPO, Idaho              BARBARA BOXER, California
ROBERT F. BENNETT, Utah              RON WYDEN, Oregon
KAY BAILEY HUTCHISON, Texas
                     Jimmie Powell, Staff Director
               J. Thomas Sliter, Minority Staff Director
                                 ------                                

  Subcommittee on Clean Air, Wetlands, Private Property, and Nuclear 
                                 Safety

                  JAMES M. INHOFE, Oklahoma, Chairman
GEORGE V. VOINOVICH, Ohio
ROBERT F. BENNETT, Utah              BOB GRAHAM, Florida
KAY BAILEY HUTCHISON, Texas          JOSEPH I. LIEBERMAN, Connecticut
                                     BARBARA BOXER, California

                                  (ii)

  
                            C O N T E N T S

                              ----------                              
                                                                   Page

                            OCTOBER 14, 1999
                           OPENING STATEMENTS

Baucus, Hon. Max, U.S. Senator from the State of Montana.........     5
Boxer, Hon. Barbara, U.S. Senator from the State of California...    47
Crapo, Hon. Michael, U.S. Senator from the State of Idaho........     2
Graham, Hon. Bob, U.S. Senator from the State of Florida.........    46
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     1
Lieberman, Hon. Joseph I., U.S. Senator from the State of 
  Connecticut....................................................     7
Moynihan, Hon. Daniel Patrick, U.S. Senator from the State of New 
  York...........................................................    46
Thomas, Hon. Craig, U.S. Senator from the State of Wyoming.......    45
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...     3

                               WITNESSES

Benoit, Michel R., executive director, Cement Kiln Recycling 
  Coalition......................................................    37
    Draft, EPA rulemaking.......................................198-204
    Letters, MACT Rules.........................................170-197
    Prepared statement...........................................   156
    Statement, Cement Kiln Recycling Coalition...................   164
Graham, John D., director, Center for Risk Analysis, Harvard 
  School of Public Health, Boston, MA............................    23
    Prepared statement...........................................    85
    Responses to additional questions from Senator Baucus........    90
Kerester, Alison, University of Texas School of Public Health, 
  Mickey Leland National Urban Air Toxic Research Center, 
  Houston, TX....................................................    21
    Prepared statement...........................................    76
    Responses to additional questions from:
        Senator Baucus...........................................    84
        Senator Moynihan.........................................    85
Melewski, Bernard C., counsel and legislative director, 
  Adirondack Council, Albany, NY.................................    33
    Brochure, Acid Rain, A Continuing National Tragedy...........   205
    Prepared statement...........................................   145
    Response to additional question from Senator Baucus..........   150
Perciasepe, Robert, Assistant Administrator, Office of Air and 
  Radiation, U.S. Environmental Protection Agency................     9
    Prepared statement...........................................    52
    Responses to additional questions from:
        Senator Graham...........................................    74
        Senator Lieberman........................................    64
        Senator Moynihan.........................................    63
        Senator Thomas...........................................    61
        Senator Baucus...........................................    68
Revesz, Richard L., director, program on environmental 
  regulation, New York University School of Law, New York, NY....    24
    Article, Environmental Regulation, Cost-Benefit Analysis, and 
      the Discounting of Human Lives, Columbia Law Review.......100-145
    Prepared statement...........................................    94
    Responses to additional questions from:
        Senator Baucus...........................................    99
        Senator Lieberman........................................   100
Tyndall, William F., vice president of environmental services, 
  Cinergy Corporation, Cincinnati, OH, on behalf of Edison 
  Electric Institute.............................................    35
    Prepared statement...........................................   151

                          ADDITIONAL MATERIAL

Letter, Gov. George Pataki.......................................    48
Statement, Gov. George Pataki....................................    49

 
                  CLEAN AIR ACT: REVIEW AND OVERSIGHT

                              ----------                              

                       THURSDAY, OCTOBER 14, 1999

                                       U.S. Senate,
Committee on Environment and Public Works, Subcommittee on 
 Clean Air, Wetlands, Private Property, and Nuclear Safety,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:03 a.m., in 
room 406, Senate Dirksen Building, Hon. James Inhofe (chairman 
of the subcommittee) presiding.
    Present: Senators Inhofe, Crapo, Voinovich, Lieberman, and 
Baucus [ex officio].

          OPENING STATEMENT OF HON. JAMES M. INHOFE, 
            U.S. SENATOR FROM THE STATE OF OKLAHOMA

    Senator Inhofe. The meeting will come to order.
    Today marks the first Clean Air Act reauthorization 
hearing. It is part of what I hope will be a 4-year process 
that we will be able to get through to reauthorize. Last time, 
I understand it took about 10 years, but we shouldn't have any 
problem doing it in a shorter period of time. I don't 
anticipate a complete rewrite, as we went through in 1990, but 
instead more of a fine tuning of the process.
    The Clean Air Act has had many successes, but it has had 
its share of failures, too. No law is perfect, and every law 
could benefit with some reforms and changes. Of course, the 
hard part is going to be agreeing on what those reforms will 
look like. As the Chairman of the Clean Air Subcommittee, I am 
not proposing a complete rewrite of the law; instead of using a 
club, we will use a surgical scalpel.
    What I would like to do at this point is highlight a few of 
the Clean Air Act's notable successes and failures.
    First, the air pollution is down. In almost every category, 
the amounts of pollutants have decreased substantially and, in 
general, people are breathing healthier air than they were 10 
or 20 years ago. But I am not sure that they realize that.
    Second, the 1990 amendments incorporating market-based 
approaches have worked. These approaches need to be expanded to 
other statutes and other sections of the Clean Air Act.
    Third, the 1990 amendments provided a framework for State 
decisionmaking ability. We need to make sure that this trend 
continues.
    In the area of failures:
    First, risk tradeoffs. The act of chasing after pennies of 
benefits for dollars in costs through its failure to identify 
the most cost-effective risks we face as a Nation.
    Second, sound science policy judgment calls have been 
confused with statements of fact regarding the science. As a 
result, the EPA has lost credibility. We need to find ways to 
involve outside panels of scientists, such as CASAC. During our 
ambient air efforts, we did not really utilize the Clean Air 
Science Advisory Committee as I think it was intended to be 
used, and I would like to see us expand the use of the talent 
that we have available to us.
    Third, exposure. Proving a chemical is toxic alone is not 
enough to justify a massive regulatory program. We have to 
understand what the human and environmental exposure routes are 
before we regulate, not just proving it is toxic.
    Fourth, we need to open up the decisionmaking process. Too 
many of the EPA's decisions have been negotiated behind closed 
doors and through settlements. The American public deserves to 
know more about this process. I think we know about the consent 
decrees and these are the things that we would like to address.
    These broad issues will be discussed during the second 
panel. The third panel will cover specific issues such as the 
MACT process, the acid rain program, and the effect of the 
multiple regulations addressing the same pollutant.
    These are just a few observations. I hope today's hearing 
will begin a public dialog on what the next version of the 
Clean Air Act will look like. I intend to followup this hearing 
with additional reauthorization hearings next year, with at 
least one hearing focusing on States and local governments.
    Senator Baucus?
    Senator Baucus. I'm not ready yet.
    Senator Inhofe. All right. Senator Crapo?

          OPENING STATEMENT OF HON. MICHAEL D. CRAPO, 
              U.S. SENATOR FROM THE STATE OF IDAHO

    Senator Crapo. Thank you very much, Mr. Chairman. I 
appreciate your allowing me to sit with the committee today. 
These hearings hold very important consequences for my State, 
as they do all States, and we have had a number of important 
issues in Idaho that directly involve the Clean Air Act and the 
implementation of the Act. I would like to welcome Mr. 
Perciasepe here today. He has been very helpful in working with 
me and our State in trying to help us get through some of the 
problems that we have faced in the implementation of the Act.
    I look forward to these hearings and hope to work very 
closely with you as we work to see if we can't get better risk 
assessment and cost-benefit analysis into the law in a way that 
will help to reach that balance between making sure that we 
protect the environment adequately yet make sure that the 
burden on industry and on the American public in other ways is 
not excessive. Thank you.
    Senator Inhofe. Thank you, Senator.
    Senator Voinovich?

        OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, 
              U.S. SENATOR FROM THE STATE OF OHIO

    Senator Voinovich. Thank you, Mr. Chairman. First of all, I 
would like to thank you for conducting this very important 
hearing today on the Clean Air Act reauthorization.
    I would also like to extend a welcome to Bill Tyndall, vice 
president of environmental services at Cinergy Corporation in 
Cincinnati, Ohio. Cinergy is one of our most responsible 
citizens in the environmental area and I am pleased that Mr. 
Tyndall will join us today. In addition, I would like to 
welcome John Graham from the Harvard Center for Risk Analysis. 
John and I have worked together on efforts to pass regulatory 
reform legislation, and John was a guest speaker before the 
Natural Resources Committee when I was Chairman of the National 
Governors Association.
    Mr. Chairman, I know that you want us to keep our remarks 
short, and I was going to go into Ohio's great environmental 
record before my remarks. But in brief, I just want to say, as 
a former commissioner, mayor, Governor, Ohio has been very 
responsible in the environmental area. I am proud of the fact 
that while I was Governor we made up our mind that we were 
going to get all of our urban areas into attainment on our 
ozone standard, and by the time I left office, all of them were 
in attainment except one, Cincinnati, and they are now waiting 
for the EPA to approve them.
    I have been concerned a long time about the fact that the 
Environmental Protection Agency was not taking into 
consideration risks, costs, benefits, and sound science during 
their rulemaking process. And I was particularly concerned 
about their ozone and particulate standards and the NOx SIPP 
call.
    I spent over one hundred hours, in fact, trying to convince 
the Environmental Protection Agency, the Clinton 
Administration, and Members of Congress and members of this 
committee that the cost of the new standards in this country 
far outweigh the benefits to public health and the environment. 
In fact, according to EPA's own estimates, the costs for 
implementing the NAAQS standard for ozone exceeded the 
benefits. The President's own Council of Economic Advisers 
predicted that the benefits would be small while the cost of 
reaching full attainment could total some $60 billion.
    I would like to note that Senator Inhofe provided 
significant help to the States by amending TEA-21 to help 
provide more reasonable timelines to implement ozone and 
particulate matter requirements. We really appreciated that 
concern on your part, Senator.
    Federal agencies should not be in a position to force 
governments, businesses, and consumers to throw billions of 
dollars at a problem without knowing if they are hitting the 
right target. So often we forget that some of these regulations 
force governments to spend money that is badly needed for other 
areas of responsibility. I will never forget when Administrator 
Browner, prior to the final NAAQS standard, told me that her 
hands were tied, that statutorily she could not use risk 
assessment and cost-benefit analysis in her consideration for 
final regulation. I think it is time that we gave her that 
authority.
    I am going to introduce a bill soon that will require EPA 
to conduct an analysis of cost and benefits while providing the 
Agency with flexibility in making final regulatory decisions. 
In fact, the bill I am about to introduce mirrors the risk 
assessment and cost-benefit analysis provisions that are in the 
Safe Drinking Water Act, which had strong bipartisan support 
and was signed into law by President Clinton in 1996. I merely 
state the obvious. If that provision was good enough for the 
Safe Drinking Water Act, it ought to be good enough for the air 
that we breathe.
    I have no doubt that using risk assessment and cost-benefit 
analysis will help ensure that reasonable and cost-effective 
rules are being set. I also believe that these analyses will 
help ensure that the air regulations, ones that are based on 
sound science, will actually be implemented in a more timely 
manner because they won't be tied up in lawsuits. We could be 
so much further along if we had just used risk assessment and 
cost-benefit analysis.
    This is really about letting the public know how 
regulations are made. We need to make the Federal Government 
more accountable to the people it serves. When EPA is setting 
clean air standards, they should answer several simple, but 
vital, questions. What science is needed to help make good 
decisions? What is the nature of the risk being considered? 
What are the benefits of the proposed regulation? How much will 
it cost? Are there better, less burdensome ways to achieve the 
same goals? Thank you, Mr. Chairman.
    [The opening statement of Senator Voinovich follows:]
 Statement of Hon. George V. Voinovich, U.S. Senator from the State of 
                                  Ohio
    Mr. Chairman, I want to thank you for conducting this very 
important hearing today on the subject of Clean Air Act 
Reauthorization.
    As a father and grandfather, I understand the importance of 
ensuring a clean environment for our future generations. Throughout my 
33 years of public service, I have demonstrated a commitment to 
preserving our environment and the health and well-being of all 
Ohioans. I sponsored legislation to create the Ohio Environmental 
Protection Agency when I served in the State legislature, and I fought 
to end oil and gas drilling in the Lake Erie bed. As Governor, I 
increased funding for environmental protection by over 60 percent. 
While in the Ohio House of Representatives, I was responsible for 
creating the Environment and Natural Resources Committee and was 
honored to serve as vice chairman of that committee.
    In addition, the State of Ohio realized significant improvements in 
air quality in recent years. When I first entered office as Governor in 
1991, most of Ohio's urban areas were not attaining the 1-hour ozone 
standard. By the time I left office in 1998, all cities had attained 
the standard, except one. However, Cincinnati is now meeting the 
standard an is awaiting action by the EPA.
    Overall, the ozone level in Ohio has gone down by 25 percent and in 
many urban areas, it has gone done by more than 50 percent in the past 
20 years. Ohio is doing its part to provide cleaner air. Nevertheless, 
over the years, I have become more and more concerned that just in 
order to comply with Federal laws and regulations, our citizens, 
businesses and State and local governments must pay costs that can be 
inordinately burdensome or totally unnecessary.
    In the 104th Congress, I worked closely with a coalition of State 
and local government officials and members of the House and Senate to 
pass effective safe drinking water reforms. The results of our efforts 
culminated in the Safe Drinking Water Act Amendments, legislation which 
was enacted with broad bipartisan support in 1996. In addition, the 
bill had the support of environmental organizations and I was pleased 
to attend the President's bill-signing ceremony when these reforms were 
signed into law. This cooperative effort is notable because it showed 
that a law could include common-sense reforms that make the government 
more accountable based on public awareness of risks, costs and 
benefits. I believe it set a key precedent for reform of environmental 
regulations.
    I specifically mention the drinking water program because it 
includes risk assessment and cost benefit analysis provisions that I 
strongly believe should be part of the Clean Air Act. In fact, I am 
about to introduce a bill that would do just that. Under my bill, the 
EPA would be required to conduct an analysis of incremental costs and 
benefits of alternative standards, while providing the agency with 
flexibility in making final regulatory decisions.
    My bill is a common-sense approach that merely addresses the 
obvious: if it's good enough to protect the water that we drink, then 
it should be good enough to protect the air that we breath. It will 
also help us avoid some of the legal and legislative wrangling that has 
occurred with respect to how we achieve clean air.
    When I was Governor of Ohio, I became more and more concerned that 
the EPA was not taking into consideration sound science, costs and 
benefits during the rulemaking process. I was particularly concerned 
about the standards for ozone and particulate matter and the NOx SIP 
call. In fact, I spent over 100 hours trying to convince the EPA, the 
Clinton Administration, Members of Congress and members of this 
committee that the costs to this country to implement the new National 
Ambient Air Quality Standards (NAAQS) far outweighed the benefits to 
public health and the environment.
    In fact, according to EPA's own estimates, the costs for 
implementing the NAAQS standard for ozone exceeded the benefits. The 
President's own Council of Economic Advisors predicted that the 
benefits would be small, while the costs of reaching full attainment 
could total $60 billion.
    Just this spring, a U.S. appeals court remanded EPA's ozone and 
PM2.5 standards, ruling that EPA did not justify its 
decision with sound scientific evidence. Ohio was a party to this 
lawsuit, which began when I was Governor. The court didn't say that EPA 
couldn't regulate at these levels, but that EPA didn't give 
justification for doing so.
    That has been my point all along. I have argued that the NAAQS 
standards and NOx SIP call were going to be costly and that we didn't 
even know if making those investments was going to make a difference.
    Federal agencies should not be in the position to force businesses 
and consumers to throw billions of dollars at a problem without knowing 
if they're hitting the right target. Yet, the EPA is asking all of 
America to pay for these new regulations simply because the EPA said it 
is the right thing to do. However, they have failed to adequately 
determine the effects of changing the ozone and particulate matter 
standards.
    In an effort to make my case with Administrator Browner regarding 
the new NAAQS standards, I told her the facts were inadequate to make 
the case for these standards. Instead of improving public health, they 
would divert resources from programs that make a real difference in 
protecting human health and the environment. However, she told me that 
her hands were tied, that statutorily she could not use risk assessment 
and cost-benefit analysis in her consideration of final regulations. At 
that point I realized it was essential to provide EPA the authority to 
take costs, benefits and risk into consideration during the rulemaking 
process. And it is important that the public know what information has 
been used in finalizing the rules that affect our air quality.
    I have no doubt that using risk assessment and cost-benefit 
analysis will help ensure that reasonable and cost-effective rules are 
being set, and which have the science to back them up.
    The challenge facing public officials today is determining how best 
to protect the health of our citizens and our environment with limited 
resources. We need to do a much better job ensuring that regulations' 
costs bear a reasonable relationship with their benefits, and we need 
to do a better job of setting priorities and spending our resources 
wisely.
    We need to make the Federal Government more accountable to the 
people it serves. When EPA is setting Clean Air standards, they should 
answer several simple, but vital questions:

    What science is needed to help us make good decisions?
    What is the nature of the risk being considered?
    What are the benefits of the proposed regulation?
    How much will it cost?
    And, are there better, less burdensome ways to achieve the same 
goals?

    Thank you Mr. Chairman, I look forward to hearing today's 
testimony.
    Senator Inhofe. Thank you, Senator Voinovich.
    Senator Baucus?

             OPENING STATEMENT OF HON. MAX BAUCUS, 
             U.S. SENATOR FROM THE STATE OF MONTANA

    Senator Baucus. Thank you. Mr. Chairman, I very much 
appreciate your holding these hearings. The Clean Air Act has 
served this country very well, but it is always good to take 
stock and look to see where we are. This is a very important 
hearing. I understand you will be holding a series of them 
overseeing the Clean Air Act.
    Mr. Chairman, as you know, it takes a long time to make a 
good product; it just doesn't happen overnight. But overall, I 
think we did a pretty good job with the amendments of 1990. We 
worked hard, very hard, this committee did with the full Senate 
and the House. It is not perfect, but it is good. We can't let 
perfection be the enemy of the good, and that certainly applies 
to the Clean Air Act. It is a good Act. It has worked. There 
are some problems with it, but basically it worked.
    The air we all breathe today is considerably cleaner than 
it was prior to the Act. Total emissions of major pollutants 
have been cut by a third since 1970. At the same time, our 
economy has prospered. Gross Domestic Product has more than 
doubled. The population increased by nearly a third. We have 
proved that we can meet stringent air quality standards and 
have a vibrant, growing economy at the same time.
    One of the issues our witnesses will discuss is the use of 
cost-benefit analysis. I am not adverse to applying cost-
benefit or risk-benefit analysis when it makes sense. We 
applied it, as has been mentioned, to the Safe Drinking Water 
Act standards-setting process in 1996. In that case, drinking 
water systems are clearly defined and costs, risks, and 
benefits are easier to calculate. But developing clean air 
standards does not lend itself easily to cost-benefit analysis. 
Calculating exposure and risk are significantly more 
complicated. Furthermore, I challenge anyone to put a dollars 
and cents value on a child's reduced IQ due to exposure to 
lead.
    The right way to go about setting clean air standards is to 
figure out what the scientists, what the doctors, what the 
experts say are the levels needed to protect public health. 
Then we can figure out how to cost-effectively implement them. 
That formula has been working well since 1970. I have not seen 
compelling evidence that we should break the success.
    There are many issues that need to be addressed in the next 
authorization. For example, how well does the Act facilitate 
regional cooperation in dealing with pollutants. We should also 
examine EPA's and the States' flexibility to fashion the most 
cost-effective programs to meet air quality standards. We could 
probably also do a better job of monitoring and determining 
exposure than we have in the past. There are plenty of other 
challenges that also need attention, not the least of which is 
that almost half the population lives in an ozone nonattainment 
area, breathing unhealthy air. And despite new controls, more 
than 8 million tons--8 million--of toxic air pollutants are 
still being emitted each year.
    I hope we will be able to pursue these and other issues in 
the coming hearings. I again thank you, Mr. Chairman, for 
holding this hearing. One other view about sound science. We 
all talk about sound science. Everybody wants sound science. Of 
course, we want sound science. But I must remind us that sound 
science is not the answer; it is only the beginning, because 
sound science will tell us what the level of certain 
contaminants might be, what the level of certain pollutants 
will be, but the final decision has to be made right here as to 
whether that is the acceptable level or not. The policy 
decision is what to do after we find out what sound science 
determines.
    So whenever we use the term ``sound science,'' I hope 
everyone realizes and remembers that it is passing the buck 
because it is not going to solve the question. The question is 
going to have to still be solved by Congress as to what to do 
after we get the data from sound science, what is the right 
public policy after we get the sound science. I just again 
remind us all that we set the policy standards. The scientists 
give us the data but we, again, set the standards.
    Senator Inhofe. Senator Baucus, I don't disagree with that. 
I think the statement that you make that the policy is made 
after we hear the sound science, I want to make sure that is 
plugged in someplace along the way.
    Senator Baucus. Oh, sure it is. As I said, Mr. Chairman, I 
think we should first listen to the scientists, listen to the 
doctors, listen to the experts as to what the health 
consequences will be, what the standards should be to protect 
public health, and then we figure out what the best cost-
benefit analysis way is to finding a way to achieve that 
standard. I ask the question again, what dollars and cents 
values and with a cost-benefit are you going to put on a child 
who has reduced IQ due to lead exposure?
    Senator Inhofe. Senator Lieberman?

        OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN, 
           U.S. SENATOR FROM THE STATE OF CONNECTICUT

    Senator Lieberman. Thanks, Mr. Chairman. I appreciate very 
much that this morning we are meeting for the first of what I 
understand will be a series of hearings leading up to the 
reauthorization of the Clean Air Act.
    Personally, passing the Clean Air Act Amendments of 1990 
was one of the most significant legislative efforts I have been 
involved in since I came to the Senate in 1989. I strongly 
supported those amendments and am very proud of the way we 
worked across party lines on this committee and with the Bush 
Administration to make changes, that is the George Bush, 
Senior, Administration, to make changes in the Act that 
improved the quality of our Nation's air. I think that we can 
all look back at the Clean Air Act Amendments of 1990 as one of 
this decade's biggest environmental success stories, and I 
believe, along with the Clean Water Act, one of the best things 
Government has done in the last three or four decades.
    Most places in America today have cleaner air than they did 
in 1990, including some of our cities, many of our cities. 
Concentrations of pollutants like lead, carbon monoxide, sulfur 
dioxide, and ozone have declined significantly. Clearly, there 
is much to be proud of and I applaud EPA for its work 
implementing the requirements of the Act. I would like to make 
particular mention of the Agency's effort to develop a regional 
smog strategy and to take Federal actions to enforce emissions 
controls for sources that contribute to regional pollution, 
which mean a lot to us in a State like Connecticut.
    But certainly there remains much more to be done. The fact 
is that 117 million Americans live in areas today where it 
continues to be unsafe to breathe the air because of ozone and 
smog pollution. Asthma rates among children are up by 75 
percent since 1990, that's a fact, making them significantly 
more vulnerable to smog pollution. Transported pollution still 
causes tremendous problems, in some instances it has been 
measured at levels that exceed the public health standard by 80 
percent.
    There are several areas of the Clean Air Act that I think 
warrant consideration as part of the reauthorization dialog 
that we are beginning this morning. For example, a series of 
requirements in the 1970 and 1977 amendments required that 
utility plants meet new source performance standards for 
pollutants, like nitrogen oxides and sulfur dioxides. These 
standards were only imposed on new plants since it was thought 
that the older plants would be retired in the near future. Yet, 
of the 1,000 power plants operating in our country today, 500 
were actually built before the regulations of the 1970's were 
enacted. So as we consider our responsibility in reauthorizing 
the Clean Air Act, it seems to me that it is essential that we 
close this loophole. Simply requiring the Nation's older power 
plants to meet the same standards that apply to new facilities 
would reduce utility emissions by 75 percent.
    Since the 1990 amendments, evidence of the impacts of 
global climate change has continued to mount. Greenhouse gas 
concentrations have continued to increase despite our 
international commitment to stabilize them at 1990 levels. As 
power plants and other major sources make changes to reduce 
nitrogen oxide, sulfur dioxide, and mercury, reduction of 
carbon dioxide emissions must also be considered as part of the 
equation so that the utilities can respond in the most cost-
effective fashion.
    Regarding acid deposition, clearly identified now as an 
issue of national not only regional concern, which is was when 
we considered it in 1990. While we have made progress in 
reducing the emissions of sulfur dioxide, I look forward to 
hearing from today's witness from the Adirondack Council about 
where more may be required if we are to slow down the 
degradation of our Nation's environment and ecosystems.
    Continued action to reduce the sulfur content of fuels and 
reduce mobile sources of air pollution is certainly one way to 
address that issue. While average emissions per vehicle have 
declined, vehicle miles travelled have continued to rise 
significantly. In addition, as we all know, the size of the 
average car has increased in recent years. We didn't envision 
growth in this way when we looked at mobile sources of 
pollution in 1990. And I continue to believe that we need to 
examine additional emission controls on vehicles because they 
can be, and are, technologically feasible and certainly can be 
cost-effective.
    Finally, Mr. Chairman, I would like to offer, in some ways 
joining with my colleague from Montana, some words of caution 
on the issue of applying cost-benefit analysis to the Clean Air 
Act. All of us seek to apply the most cost-effective policies 
and technologies to address environmental problems. We would be 
irresponsible if we didn't do that. The challenge that we face, 
however, is full of uncertainty. Anticipating the innovations 
of tomorrow requires the kind of foresight that most of us 
don't have, particularly with the extraordinary pace of 
technological innovation and progress.
    Because of that uncertainty, expectation from the cost of 
meeting clean air objectives has, in fact, been way off the 
mark as we look back. For example, in 1990, the utility 
industry predicted that acid rain controls would cost $1,500 
per ton of clean up and the leading industry trade group 
estimated that the law would cost about $100 billion each year. 
In fact, acid rain is being cleaned up at prices 94 percent 
less than was anticipated for chlorofluorocarbons, CFCs. Cost 
of compliance fell by 30 percent despite an accelerated 
timetable that was imposed for phase-out of the chemical. Both 
technology development and market system innovations have, 
therefore, significantly reduced the costs of meeting these 
environmental challenges. It is another example of the 
extraordinary resourcefulness and resilience of the American 
people, and American industry particularly, when faced with a 
challenge.
    While it is one thing to identify a clean air goal based on 
a public health objective and to say that the cost-effective 
implementation requires a long timeframe, it is quite another 
to say to the public that we can't let them know whether the 
air is clean enough to breathe because the standard doesn't 
meet a cost-benefit test.
    So, Mr. Chairman, I thank the witnesses for coming here 
today. The challenge of reauthorizing the Clean Air Act takes 
us now along a path which will be long and it will have many 
turns, and the input from stakeholders, like those here today, 
will be an essential part of the journey we embark on. I thank 
you very much, Mr. Chairman, for beginning this effort today 
with this hearing.
    Senator Inhofe. Thank you, Senator Lieberman.
    Since we have three panels today and seven witnesses, we 
are going to adhere to the 5-minute rule on the opening 
statements with the exception of Mr. Perciasepe. Since he is 
the only witness from the Administration, we will give him 10 
minutes. But we will try to restrict our questioning time to 5 
minute rounds in order to accommodate our schedule in getting 
out.
    We are all familiar with Bob Perciasepe, the assistant 
administrator, Office of Air and Radiation, in the U.S. 
Environmental Protection Agency.
    Mr. Perciasepe?

STATEMENT OF ROBERT PERCIASEPE, ASSISTANT ADMINISTRATOR, OFFICE 
   OF AIR AND RADIATION, U.S. ENVIRONMENTAL PROTECTION AGENCY

    Mr. Perciasepe. Thank you, Mr. Chairman, Senators, it is a 
pleasure to be here today with you to talk about the Clean Air 
Act. I will try to do this within 10 minutes, but I appreciate 
the indulgence of the Chair.
    I think it has already been said several times but it 
stands repeating. The 1990 amendments passed with overwhelming 
support in both the Senate and the House of Representatives and 
were, of course, signed by President Bush, as was mentioned. It 
was strong bipartisan legislation and it was designed to 
achieve results. Air pollution at that time was damaging 
aquatic life with acid rain, smog exceeded health standards in 
98 cities, carbon monoxide was a problem in dozens of cities, 
and no progress was being made on hazardous air pollution, just 
to name a few issues that were facing the Congress in 1990.
    But we have made tremendous progress. You see on my chart 
here--I've given each one of you a copy too--that we have made 
a lot of progress. Some of these have been mentioned, but let 
me put a little point on some of these that are also in my 
written testimony.
    Reducing acid rain. We have already reduced 5 million tons, 
and we are on track to the 10 million ton goal that Congress 
had set. Acidity in precipitation has been cut in some areas by 
25 percent.
    Decreasing smog and soot. Back in 1990 we had 98 areas that 
were nonattainment for ozone, and 62 of those areas now have 
air quality meeting that standard. We had 41 areas in 
nonattainment for carbon monoxide, 35 of those areas have come 
into attainment. And for the course particle soot standard we 
had 85 areas in nonattainment, 71 of those areas have achieved 
air quality meeting the standards.
    On industrial air toxic emissions. Forty-three standards 
have been put out and 70 industrial categories are included. 
This will result in 1.5 million tons of toxic reductions and 
also VOC and particulate reductions.
    Often overlooked in our discussion of the Clean Air Act is 
that there was a strong commitment to protect the stratospheric 
ozone layer in that law, to phaseout things like 
chlorofluorocarbons. And since 1990, as you can see from this 
chart, the most damaging chemicals, including CFCs, have been 
phased out. Our projection is that this will reduce skin cancer 
occurrences over the next century by 295 million.
    Cleaning up cars, buses, trucks, and fuels was another 
important part of the Clean Air Act. The first tier tailpipe 
standards in the Act that went into effect in 1994 reduced 
emissions by 40 percent. A negotiated national low emission 
vehicle program that is taking effect this year in the 
Northeast and in the rest of the country in 2001 reduces NOx by 
50 percent. The reformulated gasoline program reduced VOC and 
toxics by 15 percent. In the RFG areas, we are measuring over a 
40 percent reduction of ambient benzene in the air.
    Let's take a look at some of the specific numbers again 
that have been mentioned several times. Lead down, this is 
going back to 1970, lead emissions down 98 percent, and you can 
see the numbers there and I won't go into them in detail. I 
will note that nitrogen oxides emissions have increased since 
1970, although in the last decade they have started to come 
down. And you have these charts. I am going fast here to try 
to----
    Senator Inhofe. We appreciate that. Thank you.
    Mr. Perciasepe. This hasn't happened without the strong 
support of a statute passed, as I mentioned, with strong 
bipartisan support, strong support in both the Senate and the 
House that was designed for success. I think, Mr. Chairman, you 
mentioned some of these innovative things that were spurred by 
the Act, the trading programs. The acid rain program for 
SO2 has been a big success and continues to be a 
success, although at the end of my remarks I will get to what 
more might need to be done there. In the Northeast we are 
working with the States on a nitrogen oxide trading program 
which is a unique partnership between the States and EPA. And 
there have been plenty of innovations at the local level with 
market mechanisms and trading, like the RECLAIM Program in 
California.
    We have had multiple stakeholder processes. I mentioned the 
National Low Emission Vehicle Program. This was a process with 
the States and with the automobile industry to look at 
delivering improved performance of motor vehicles on a national 
level, and all the participants in that stand to be 
congratulated because that is happening today. The Acid Rain 
Advisory Committee was set up early in the 1990's to work with 
all the stakeholders to set up the acid rain program. The Ozone 
Transport Assessment Group (OTAG) for 37 States in the Eastern 
part of the country was established to look at state-of-the-art 
modelling of nitrogen oxide across the entire Eastern part of 
the country.
    Also compliance assistance--we often lose sight of the work 
that has been going on in this area. In the 1990 amendments, 
small business technical assistance programs were established, 
an ombudsmen for small business for every State, just to give 
you an example. In 1997, there were 78,500 assistances provided 
to small businesses, 6,000 onsite consultations. These are 
examples of the kinds of things that are going on out there on 
a day-to-day basis. A Texas furniture company was able to 
invest $8,000 in a new coating technique for painting and 
coating furniture that dropped VOC emissions almost in half and 
saved tens of thousands of dollars on an annual basis. Also the 
Great Printers Program in the Midwest around the Great Lakes 
area and the printers association, strong work with them; metal 
finishers, strong work with the metal finishers. With the 
automobile industry, we have worked on a revised approach to 
compliance assurance called CAP 2000 which we just implemented 
that will save the automobile industry $55 million a year in 
compliance costs for all their certification programs.
    This next chart brings together some of the points I think 
that have been made in the opening comments and that I would 
like to concentrate on for just a moment. The green line at the 
bottom of the chart shows the aggregate emissions from 1970 to 
just a couple years ago, pretty much present time. I think it 
has already been mentioned the criteria pollutants have been 
reduced by 30 percent from a 1970 baseline. During that time, 
population has gone up, Gross Domestic Product has gone up, and 
another indicator of our activity in national economic 
activity, vehicle miles travelled, more people moving around, 
has gone up.
    While this has been happening, according to our 
retrospective study on public health, under section 812 of the 
Clean Air Act, is 184,000 premature mortalities have been 
avoided, 10 million IQ points have been preserved, 8 million 
acute bronchitis cases have been avoided, 39,000 heart failures 
have been avoided, 130 million instances of acute respiratory 
symptoms, and I could go on. That is just a summary of the 
health benefits that are accruing from our retrospective study.
    What this has not meant to the economy? Some of the 
predictions we have heard already. For example, it was 
predicted that the acid rain program would cost up to $7 
billion. Recent EPA and General Accounting Office estimates, $1 
to $2 billion. Reformulated gasoline--there was testimony that 
it would cost 16 cents a gallon. The true cost is 3 to 5 cents 
a gallon. The refrigeration industry said reducing CFCs was 
just not feasible. CFCs are gone, substitutes are there, a 
whole new industry has come up. The automobile company 
testified in 1980 ``We just don't have the technology to do 
this.'' Today, 10 years later, they are providing technology 
beyond what Congress was even contemplating 10 years ago.
    How did this happen? How did we have this economic growth 
and this reduction in pollution at the same time? We had it 
because we had a Clean Air Act that was designed for action, 
and we had it because of the innovation of American business. 
We continually underestimate their ability to innovate and 
achieve our goals in this country. That is one of the problems 
that I will get to in a moment when we talk about cost-benefit 
analysis, because we don't know what the cost is going to be 
because it is always cheaper than we estimate today when we 
actually do it tomorrow.
    This is the last chart. You see this is the summary chart.
    [Laughter.]
    Mr. Perciasepe. I try to be succinct. We still have, as you 
heard, 100 million people still living in areas that don't meet 
the air quality standards. Several opening statements talked 
about the new standards that we have issued. Congress required 
EPA to look every 5 years to update standards. We did that in 
1997. Implementation has been delayed by a court remand and we 
are appealing that.
    I want to point out a couple of things because I really do 
disagree respectfully with the comments that science was not 
used in setting those standards or that independent analysis 
was not provided. There has been no impartial body that has 
disputed the scientific basis of those standards. The courts' 
decisions were not based on the science. They were remanded for 
other reasons. We can probably get into this in the questions 
and answers because I know I am getting near the end of my 
time, but we need to move forward with implementing those 
standards. We will continue to work with the court and the 
judicial system to move forward on that. We will continue to do 
the reassessment of some of the science that we did commit to.
    But while that goes forward, there is some remaining 
unfinished business that we need to do. We still need regional 
nitrogen oxides reductions. The National Academy of Sciences 
told us that almost 10 years ago now and we are still fooling 
around with it. The next generation of tailpipe and gasoline 
standards, you saw that VMT chart I had up there before, there 
is no projection that it is going to go the other way. So, as a 
great philosopher once said, Will Rogers, even if you're on the 
right track for tailpipe emissions, he didn't have tailpipe 
emissions in there--you'll get run over if you just sit there. 
And that is what is going to happen with VMT. That is why we 
need to continually improve automobile and fuel technology. 
Heavy duty engines and diesel fuel, local measures for the 1-
hour ozone standard in the severe and serious nonattainment 
area. Air toxics, we need to move that program into the risk-
based part of it, and we need to facilitate more regional 
planning.
    Mr. Chairman, we are prepared to work with the committee on 
the process that you are initiating today to review the Clean 
Air Act. We want to work with you to evaluate whether 
reauthorization is needed or whether it will be disruptive. We 
think the process that you have in place to review different 
parts of it will be helpful to us and to you for making that 
decision. There are some ideas that I will throw out right here 
that are worth considering as we go through that process: 
Additional authority for multiple State cap and trade programs 
for any pollutant; indoor air quality is not included in the 
Clean Air Act; address all utility emissions including 
greenhouse gases; and a new generation of fuels, and more 
flexibility in our authority on oxygenates so that we can deal 
with that.
    So, in closing, I appreciate the opportunity to be before 
you today to talk about this. You can see that there have been 
successes, and you can see that it has been done in an 
innovative way, and you can see that there are still challenges 
before us. So I stand here ready to answer your questions.
    Senator Inhofe. Thank you, Mr. Perciasepe. I am sorry we 
had to be so hard on the time but it is necessary. I am going 
ask you a couple of questions and then I am going to excuse 
myself for just a few minutes because we have the Senate Armed 
Services Committee with Secretary Cohen. I know that Senator 
Lieberman has the same problem. I have to run down there just 
to get a couple of statements in and then I will come right 
back up.
    Mr. Perciasepe, did you read the testimony of Dr. Graham 
and Ms. Kerester? Did you have a chance to read that testimony 
they submitted?
    Mr. Perciasepe. I am afraid I haven't.
    Senator Inhofe. Let me read a couple of paragraphs here and 
just kind of get your reaction. This is from Dr. Graham. He 
said, ``Measuring success by the number of industries regulated 
is not very meaningful to public health. The big unknown in the 
toxics arena is whether the public health benefits of reduced 
human exposures to air toxics have been significant enough to 
justify the significant expenditures of Agency and industrial 
resources that has taken place.''
    And then Ms. Kerester states in her written testimony, 
which she will elaborate on in a few minutes, ``The Clean Air 
Act Amendments of 1990 rely solely on the assumption that 
outdoor levels are determinative of an individual's exposure, 
and hence risk. Merely reducing the ambient emissions level may 
not result in improved public health.''
    In your testimony, you downplay the need to renew this Act. 
I think you said ``Let me stress that once this review process 
is completed, we must assess whether reopening the Act would be 
more helpful or more disruptive on the whole.'' I guess you 
mean we should just continue on the same path, that's my 
interpretation anyway. And based on these two witnesses, I 
would question whether or not that is the right goal. Would you 
like to respond to that? Can you say that the current 
regulatory programs are the most cost-effective way to 
improving public health and what people are actually exposed 
to?
    Mr. Perciasepe. I think those comments that you just read 
to me from those other testimonies relate to a very specific 
part of the Clean Air Act related to stationary source toxic 
emissions, which were not dealt with very well, if at all, 
before the 1990 amendments. Congress envisioned a two-step 
process when they set that up. First, that in all these 
different industrial categories, people ought to perform on the 
toxic emissions profile to the best performers in that class. 
These maximum available control technology standards are 
designed to find the top performing percentage of the class, 
and then have everybody move into that performance level. Then 
after that, look to see if there is any residual risk. The 
second step gets into exactly what you're talking about and 
what I am assuming the testimony gets into, and that is: What 
are the remaining risks, if any, after you make those 
improvements.
    So Congress envisioned a two-step process. We are prepared 
to go to that second step to look at what residual risk is out 
there in the environment in the ambient air from toxics and 
attack only those risks that are meaningful from a public 
health perspective. I would agree that we need to move on to 
that level of analysis and work. We are moving to that point 
now at the Agency. It seems to me that is what the Act had set 
up the process to do.
    Senator Inhofe. Let me just read to you another statement 
from Dr. Graham. I know Dr. Graham and Ms. Kerester are here 
and we might ask them to listen to the response.
    Dr. Graham said that ``The EPA has not modernized its 
cancer risk assessment guidelines to account for advances in 
biological understanding of the mechanisms of cancer 
induction.'' And he goes on to discuss specific examples of 
where the EPA has been lax on science issues. I am very 
concerned that you are starting down a major regulatory 
program, the Air Toxins program, without first completing the 
necessary guidelines or paying attention to the most recent 
science. Dr. Graham asked Congress to pay attention to this 
issue, and I am. I would just like to get your response to 
that, and then my time has expired and I will have to excuse 
myself.
    Mr. Perciasepe. Well, I agree with the comment about the 
cancer guidelines. We are pushing hard in the Agency to get 
those cancer guidelines updated. We are ready to use the 
updated guidelines when we're finished with the process review. 
We are doing that now.
    Senator Inhofe. Thank you, Mr. Perciasepe.
    Senator Baucus?
    Senator Baucus. Thank you, Mr. Chairman.
    Mr. Perciasepe, as you kind of stand back a little bit and 
think about the Act, I wonder if you could just embellish a 
little bit on your presentation; namely, where has it really 
worked, where, as you're driving to and from work and think 
about all these things, do you think we should perhaps 
concentrate a little bit. But just your overall assessment of 
all of this, just standing back a little bit for maybe some 
perspective, and just flesh out a little more on what you just 
said.
    Mr. Perciasepe. Any of these environmental statutes--and, 
as you know, I have had some experience on the Safe Drinking 
Water Act and the Clean Water Act side as well--all of these 
work best when everybody works together toward a common goal. 
That was the hallmark of the enactment of the Clean Air Act 
early on in this decade. The Clean Air Act processes that 
attacked pollution by fostering emerging technology. For 
example, the Act addressed air pollution caused by the 
automobile by looking at fuels and cars as a system and by 
working with both the oil and automobile industries together. 
The Act has set up those processes. Another example is our 
working with the utilities on market approaches and putting a 
goal in place, a declining cap to allow market mechanisms----
    Senator Baucus. Where in the Act has working together 
worked best, and where in the Act, or maybe not in the Act, has 
there been not enough working together?
    Mr. Perciasepe. Well, I guess I would fall back on the 
examples I used, Senator. Clearly, working together on the acid 
rain program has worked. It is not just the natural resource 
managers who are concerned about acid precipitation, not just 
the utilities, not just EPA, not just the States, but also the 
commodities markets in Chicago who have been involved. So, it 
is a really broad-based involvement toward a common goal.
    I think we have an effective system there. It is time to 
evaluate whether or not the goal that Congress set of a 10 
million ton reduction is adequate to achieve the objectives 
that the Act set out for actually preserving the natural 
resources and the parks of the country that are severely 
impacted by acid rains. I think you will have some more 
testimony about that. But you can use existing mechanisms to 
allow that process to continue.
    Senator Baucus. You made a very good point that we always 
over-estimate the costs. Could you give us some examples of 
that and flesh out a little more as to why that happens. I 
think that is a very valid point, one I agree with. For 
example, I recall that years ago when Congress asked the auto 
industry to come up with a catalytic converter they said 
``That's impossible. It can't be done.'' We told the industry 
to do it anyway. Well, guess what? They did it. Not only did 
they do it, they did it in a way in redesigning their emission 
systems so that it is much more cost-effective and they made 
money on the deal. But if you could just give us some examples 
of just where we really overshot the costs and how the 
innovation, ingenuity of America's business people have found 
through developments in new technologies lot cheaper ways of 
doing things.
    Mr. Perciasepe. I think the example you give is a very good 
one, the automobile. I want to say this right up front, that 
progress and improvement would not have happened without the 
tenacity of the automobile industry to do the engineering and 
the innovation that needed to take place. At first, there is 
often resistance to change, but once you're there, the 
innovation comes. And that is what we see every time. 
Reductions in automobile emissions are a classic example of 
this.
    I remember in the early 1990's when I was working in the 
State of Maryland trying to opt in to the California low 
emission standards. I needed lower emission vehicles in 
Maryland; they were being delivered in California and I wanted 
them too. This was an opportunity that the Congress provided in 
the Act. The debates I had were how many thousands of dollars 
this was going to cost per car. I testified in the Maryland 
General Assembly alongside my colleagues in the automobile 
industry, I'm saying hundreds of dollars, they're saying 
thousands of dollars, and we know what the true cost was. I 
have personal experience with such resistance.
    I don't want to make it sound like the industry doesn't 
step up to the plate. They do, and they did, and that is what 
makes some of this very difficult to deal with in terms of 
projecting into the future what these costs might be. It is not 
only achieving the goal at a cheaper cost, sometimes we find 
out we can do better on the goal at the same cost. So, both of 
those come into play when you look at the innovation that takes 
place.
    To the automobile industry's credit also, and the oil 
industry's credit, they have come forward and said we need to 
look at these two things more as a system and we can even get 
more forward. So we take that next step. We said how does this 
work together----
    Senator Baucus. My time has expired, but if you would 
indulge me just one followup question. Any advice you have as 
to how to get the players together earlier to better work 
together so we would have less problems trying to cross that 
threshold? I agree with you. Once the industry starts, they do 
a bang up job. They're great. But it's that point of realizing 
that we have got to go this next step. Any thoughts as to how 
we get the industries, the EPA, and folks together earlier on 
in the process to say, hey, yes, this is good for business, 
this is good for the environment, this is good for our company, 
let's figure out a way to do this?
    Mr. Perciasepe. Human nature is that when you are faced 
with a challenge you rise to the challenge. That has been what 
makes this country great. People do it. What end up tangling 
ourselves in these arguments over whether the cost worth it or 
not. That shouldn't be the argument. The argument should be how 
do we innovate to achieve it. One example of the difficulties 
associated with evaluating public health is using cost benefits 
to ozone. If you use a cost-benefit analysis between 0.09 parts 
per billion of ozone and 0.07 parts per billion, or 0.08 parts 
per billion, you will soon recognize the limits of the tool. 
With the tools we have, that is like using a sledgehammer to do 
a staple job.
    The tools we have on cost-benefit analysis cannot give you 
any information as a decisionmaker between 0.09 parts per 
billion and 0.08 parts per billion. The sensitivity does not 
exist. We don't know how much we will be able to reduce the 
costs in the future when innovation takes place. It is just a 
futile exercise in setting an air quality health standard. It 
is not a futile exercise to consider cost in determining how 
you would implement that goal. In implementing, we must look at 
costs, we must figure out how we distribute that in the 
economy, and what timeframes are provided to allow that 
innovation to take place.
    Senator Baucus. My time has expired. I want to thank you 
very much.
    Senator Voinovich [presiding]. Senator Lieberman?
    Senator Lieberman. Thanks, Mr. Chairman.
    Very briefly, some of the testimony today suggests that 
EPA's commitment to cost-benefit varies widely and that the 
Agency sometimes estimates regulatory costs but does not 
quantify benefits in health or economic terms. I wonder if you 
could describe briefly how EPA considers costs and benefits in 
setting standards, and how it considers costs and benefits in 
implementing them.
    Mr. Perciasepe. Some of that, as you say, does vary from 
statute to statute, and from parts of the statute to parts of 
the statute. When we look at setting health-based goals and 
standards, we want to use science to tell us the polluting 
level associated with the health effect from which we're trying 
to protect the general population, or for that matter, 
susceptible populations or concentrations of populations in 
urban areas. The cost-effectiveness kind of analysis you would 
do in considering, for instance, nitrogen oxide reductions from 
power plants, can be a much more refined cost and effective 
analysis. You can look at specific technologies that are in 
existence now, you can make some judgments about where those 
technologies might be in the near term, and you can do a good 
analysis.
    So, we have executive orders that tell us to calculate 
these costs and the benefits. We do the retrospective study in 
the Clean Air Act that Congress has requested under section 
812, and we are in the process of doing the prospective study 
which we hope to have out later this fall. So these tools are 
useful and they can help inform everybody of where we're going.
    But when looking at the health-based standards, we're 
telling the American public what the level of pollutants are in 
the air that are going to be healthy for them. If then you say, 
``Unfortunately, our current ability to do cost-benefit 
analysis tells us that we're not going to make it at that 
level.''--I don't think that is what Congress had in mind.
    We have had 25 years of the Clean Air Act where we have set 
standards without doing that. We have had six different 
presidents, we have had 15 different Congresses, and we have 
never considered costs in trying to tell the American public--
which I think was a covenant that Congress made with the 
American public when they enacted the Clean Air Act--that this 
is what healthy air is.
    When the science gives us more information about that, we 
reset the standard. The time limit to achieve the standard, to 
allow the innovation to take place, the diversity of methods, 
whether it be trading or technology-based standards, all of 
that needs to be looked at in how you can most optimally 
achieve those health standards. I am sorry I have gone on so 
long.
    Senator Lieberman. No. I agree. I enjoy your passion. Let 
me ask one more question just to delve a little bit more into 
perhaps the other side of the cost-benefit analysis, and it 
goes back to something I said in my opening statement. What are 
the current ways that the Agency tries to quantify and predict 
technological innovation and market trends when evaluating the 
costs of a given air quality objective?
    Mr. Perciasepe. We do it through a number of ways. First, 
and foremost, we are increasing our relationships with the 
business community that is out there doing the innovation. I 
could have put a chart up here, which I didn't, on the amount 
of the GDP that is related to pollution control work--the 
amount of innovation and business activity involved with 
innovating in pollution control and pollution prevention. I 
believe that product design is going on at a more robust level 
in the United States than I think it ever has in the past. The 
pollution control and preservation industry is out there for us 
to engage with and get their views on where they see some of 
the innovation going.
    We also do our own research and development. We have an 
Office of Research and Development that looks at technology for 
different areas, and their work helps inform us on the future. 
Many parts of the Clean Air Act and some of the other statutes, 
when we're looking at specific technology-based standards for a 
particular class of sources, require us to look at feasibility. 
In some cases, we actually will develop a prototype ourselves. 
In our Ann Arbor, MI, lab where we test all the motor vehicles, 
we actually will take a sport utility vehicle. We will work 
with catalyst manufacturers, engine control technology, 
software folks and we will develop an optimized emission 
control system on that vehicle to see if it is feasible to 
achieve certain pollution levels. So, sometimes we actually 
will do the research ourselves.
    Senator Lieberman. Do you think we are in a better position 
today than we were in 1990 to fit into our cost-benefit 
analysis the cost of technological innovation than we were 
then? I cited some of the estimates, and most of the estimates 
were over-stated, or a lot of them were.
    Mr. Perciasepe. Only on a near term. It is hard to get too 
far out. Again, just 9 years ago we were thinking some of the 
things we can do with automobiles now would be thousands of 
dollars per vehicle compared to hundreds of dollars per 
vehicle. On a coal-fire power plant, we thought getting the 
kind of nitrogen oxide reductions that are technologically 
feasible and cost-effective now were not even feasible or will 
in some infant level of discovery. Innovation is happening at a 
rapid pace. It is hard to predict. Oftentimes, once the air 
quality standards are in place, a lot of innovation occurs on 
how to achieve it more cheaply. Predictions for costs further 
out in the future become less certain.
    Senator Lieberman. Thanks, Mr. Perciasepe. And thank you, 
Mr. Chairman.
    Senator Voinovich. You're welcome.
    Mr. Perciasepe, first of all, I think that the record of 
achievement is very impressive. I would like to add, and I am 
glad you mentioned it, a great deal of it is attributable to 
the aggressiveness of many of the industries and political 
subdivisions in this country that are interested in having 
clean air. I know in our State, we have about 160 of our worst 
polluters agreeing to reduce their 17 worst toxics and have 
made some real progress there. Every year we honored 
individuals that had done a good job in the area of air 
pollution. It also showed that by doing it, it was not only 
good for the air, but good for business. So there is a lot of 
good things going on there.
    A couple of things I would just like to comment on and 
maybe get your reaction. As you know, I am particularly 
concerned about the NOx SIP call. You were saying that the 
Agency likes to involve people in the decisionmaking, a 
partnership. I just want to point out that the OTAG 
organization, when they were talking about complying with that 
SIP call, fundamentally said that they felt that the States 
should try to work out a reasonable way of complying with this. 
And, as you recall, it was 85 percent or 65 percent. Your 
Agency just ignored the OTAG recommendations and put an 85 
percent requirement on our utilities when the Midwest Governors 
and the Southern Governors had indicated that going to a 
smaller amount could get the job done, and, in some instances, 
would have gotten it done before the 85 percent requirement 
that your Agency put on them.
    I just wonder, you talk about cooperation and working with 
people, what is your reaction to that?
    Mr. Perciasepe. First of all, I appreciate those comments. 
There were some tough decisions that had to be made in that 
process. But let me address the things that we did agree on, 
and then I'll get to your point at the end.
    Senator Voinovich. And by the way, that was all meant to 
try and reach the new 8 hour ozone standard.
    Mr. Perciasepe. I'll mention that too at the end. The OTAG 
process was precipitated by many things. One of the things that 
precipitated it--and it was going on before the 8-hour 
standard--was the realization in the scientific community that 
for levels of nitrogen oxides, regional reductions are going to 
be almost as important as some of the local VOC reductions to 
meet the ground-level ozone standard. And so a lot of work was 
done on that in the early 1990's which then facilitated this 
37-State Ozone Transport Assessment Group to look at the most 
up-to-date modelling.
    I think it is important to note that I believe all 37 
States agreed that significant regional reductions in nitrogen 
oxide were appropriate for the benefit of all, and that they 
agreed on a range of what it ought to be. And you are right, we 
picked the more exemplary end of that range. And we all agreed 
that in implementing whatever that budget would be for each 
State, that the proper approach would be to give the State the 
flexibility on how to achieve the budget. So we set up a 
process where each State would have a budget, similar what we 
have tried to do in the acid rain program. We would have 
banking and trading, early credits, and all of the market 
mechanisms in place to reduce the cost of the rule. Then the 
State would have some flexibility in its own planning processes 
to figure out the best way to achieve the targets. We 
identified an approach we thought would be very cost-effective.
    One of the things that started to evolve there, Senator, 
was, again, these very different cost estimates; how much is 
this going to cost to achieve these reductions. We had a set of 
cost estimates for measures that we think are very cost-
effective and there were others who had different cost 
estimates. This became a tug of war of the cost estimates.
    Senator Voinovich. I understand that. All I am saying is 
there was an agreement that we would have flexibility and we 
didn't have it. And that bothers me.
    The other thing is that you talk about good science and 
that that is taken into consideration and how you measure that. 
The fact is, when you went with the new PM standards, from 10 
to 2.5, you still don't know the real impact of what 2.5 means 
as compared to 10 in terms of public health. When you proposed 
that new rule, at the same time you proposed it the Agency 
asked for I think $37 million from Congress to do research work 
on the PM standard. Last year, it was some $60 million, and I 
think you are asking for more this year.
    The question I have is, instead of moving forward with that 
new standard in PM, and by the way, that is being held up in 
court today, why didn't the Agency first do their homework and 
get the science before they went forward with that new 
standard?
    Another example is we were one of the States that really 
took on the emissions testing program. And I, you have heard me 
say this before, I caught all kinds of hell from my people as a 
result of doing that. People said it doesn't do any good, and I 
said yes, it does do good, and we are given credit for it and 
it is helping us meet the required ambient air standards so we 
can come into compliance with the standard. But when I went 
back to the Agency to ask them can you tell us just how these 
emissions testings help clean up the air, we could not get an 
authoritative answer from you. As a matter of fact, we had to 
go to Congress. Dave Hobson I think asked for $350,000 to do a 
study in terms of whether or not this emission testing was, 
indeed, making any difference in terms of reducing the 
pollutants. I don't know where that study is today, maybe you 
do. Where are we on that?
    Mr. Perciasepe. Let me do the PM first. We went through a 
vigorous scientific process with our Clean Air Act Scientific 
Advisory Committee to look at fine particles. I know of no 
scientific disagreement that the smaller particles are more 
important for public health protection than we had thought in 
the past and that regulating a smaller-sized particle is 
appropriate.
    Senator Voinovich. The fact of the matter is that smaller 
is better. In terms of real impacts on public health or impacts 
on the costs to comply with the standard, which are 
significant, it was just said, ``Well, it is going to make 
things better. How much better we don't know; we know it is 
going to make it better, although some scientists have some 
questions about that.'' It just seems that when it comes time 
for decisionmaking in the Agency, instead of using what I call 
common sense, it always falls on the side of: ``Let's go ahead 
and do it, we're not really sure about it, but, sure, it's 
going to be better.''
    Mr. Chairman, just one last thing. I'll never forget this 
as long as I live. Lorain, Ohio, this is before the Clinton 
Administration, Lorain, Ohio, U.S.S. Colby wants to put on a 
brand new blast furnace and shut down an old blast furnace. The 
Environmental Protection Agency said they couldn't do it 
because the new standard that they had set--and, by the way, 
the new standard they had set for the ambient air standards in 
Lorain had been set when that steel plant was almost out of 
business. So now they're coming back, they want to put on a new 
blast furnace, take down another one, clean up the air, and the 
Agency says you can't do it. I had to go to Dan Quayle, who I 
think was head of the Cabinet Council or something like that, 
to finally get that thing worked out.
    What I am saying is that it is the common sense, it is the 
balance that just doesn't seem to be present. I think, and this 
is just a recommendation in terms of using risk assessment in 
the air standard that basically is in the Safe Drinking Water 
Act, that kind of thing is necessary in order for the Agency to 
function in a reasonable fashion and encourage people to spend 
money where it is going to make a difference and not get them 
involved in things where they are going to spend money and not 
get a return on their investment and don't make a difference in 
terms of a public health.
    Mr. Perciasepe. I will just say something generally.
    Chairman Inhofe [reclaiming the chair]. And make it fairly 
brief because we are going to have to move on to the next 
panel.
    Mr. Perciasepe. I just want to say for the record that with 
all the possible respect I can muster up here, which is a lot 
for both of you, I disagree with your characterization of how 
the Agency makes decisions. I strongly disagree with them. The 
Agency went through a very deliberative process. We didn't just 
sit there and say, ``Well, what the hell, it will be better if 
the particle size is smaller.'' That is just disingenuous. We 
thoroughly reviewed the available science. It went on for 
years. We have committed to reverifying the standard before it 
gets implemented and that reverification process is underway. 
We committed to have a very robust monitoring program in place, 
which is why we are asking for the funding.
    Senator Voinovich. But you put the standard out and you are 
going to say to the communities that you haven't met the new 
ozone standards, you haven't met the new particulate standard, 
and you place this designation on an area. You have no idea of 
the impact that has in terms of keeping businesses in the area 
and getting them to expand and of businesses coming to the 
area. One of the reasons why I wanted to obtain ambient air 
standards in Ohio was to get that negative off communities, 
because businesses around the country told me that if they 
aren't reaching their ambient air standards, we are not going 
there, we're going someplace else because we don't want the 
headaches. A couple of businesses were talking about leaving 
the Toledo area, Cooper Tire was one, because of the fact they 
had not reached the ambient air standards and they were told if 
you don't reach it is going to cost you a whole lot more money 
if you're going to expand.
    So when you start giving these designations in communities 
around the country, those designations have tremendous impact 
on the economic vitality of those communities. So I think it is 
important that we're careful about going forward with some of 
that.
    Senator Inhofe. I am going to have to exercise the 
prerogative of the chair and regain control.
    [Laughter.]
    Mr. Perciasepe. We can continue after the hearing.
    Senator Inhofe. We thank you very much, Mr. Perciasepe. I 
am sure you will want to answer some things for the record, and 
you certainly may do that. So we will excuse you now.
    Senator Inhofe. We would ask for our next panel to come 
forward. We have Professor John Graham, Harvard Center of Risk 
Analysis; Professor Richard Revesz, New York University School 
of Law; and Ms. Alison Kerester, University of Texas School of 
Public Health, Mickey Leland National Urban Air Toxic Research 
Center. We welcome you all to this committee. We will ask that 
you watch our little stop/change/go lights and comply with that 
since we are under some time constraints here.
    Let's go ahead and start with you, Ms. Kerester.

  STATEMENT OF ALISON KERESTER, UNIVERSITY OF TEXAS SCHOOL OF 
PUBLIC HEALTH, MICKEY LELAND NATIONAL URBAN AIR TOXICS RESEARCH 
                      CENTER, HOUSTON, TX

    Ms. Kerester. Thank you very much. Good morning. I am 
Alison Kerester. I am the executive director of the Mickey 
Leland National Urban Air Toxics Research Center. The Leland 
Center was established by Congress under Section 112 of the 
Clean Air Act as a public/private partnership to sponsor 
research on the public health impacts of air toxics. Congress 
created the Leland Center to generate the critical information 
needed to make air toxics health risk assessments more 
realistic.
    In keeping with our congressional mandate, the Center 
identified two critical information gaps: One, personal 
exposure to air toxics, and two, the non-cancer effects of 
these exposures. The Center chose to focus its initial efforts 
on personal exposure, and that is what I am going to talk about 
this morning.
    Exposure is defined as the contact of a chemical, 
biological, or physical agent with the boundary of the body 
over a period of time. People may be exposed through inhaling a 
chemical, through ingesting it through food or water, or having 
it absorbed on the skin. For air pollutants, inhalation is the 
primary route of exposure.
    What people are exposed to is a function of where they 
spend their time, how much time they spend there, and the 
activities they engage in. People move through a series of 
locations or microenvironments during the course of the day. 
This room is a microenvironment, my time in the plane last 
night is a microenvironment. Studies have now shown that 
Americans spend the majority of their time inside, and in some 
cities, such as Houston, that amounts to almost 90 percent 
because of climatic conditions.
    Scientific research has demonstrated that indoor sources 
may often be the dominant source of air toxics exposures to 
people. While outside sources can penetrate inside through 
ventilation systems and open windows, air toxics may be emitted 
directly from sources in the home or building through 
carpeting, building materials, consumer products such as room 
deodorizers. In addition, the simple activity of cooking or 
even taking a shower may generate air toxics. In some 
instances, outdoor air sources may be the primary source. For 
example, carbon tetrachloride has been banned from consumer 
use; however, it still exists in the ambient air. Thus, the 
source of exposure to this chemical would be an outside source.
    In addition, some emissions in a person's breathing zone 
may contribute significantly to personal exposure while 
contributing a minimal amount to ambient levels. Smoking is an 
example of this. Smoking accounts for the largest percentage of 
a personal exposure to benzene, yet that activity contributes a 
minimal amount to ambient levels. Thus, it is important to take 
into account all sources of potential exposure and to 
understand the relationship among outdoor, indoor, and personal 
exposures. There are a number of scientific studies underway 
investigating this relationship.
    Exposure assessment is the science of measuring people's 
exposure. It can be done by a variety of methods. The more 
accurate the method means it is closer to the body. So breath 
samples, and the use of a personal monitor, which is being used 
in several studies, attached to the lapel, picks up chemicals 
within a person's breathing zone. Exposure assessments are used 
in epidemiological studies, they are used in risk assessments, 
in trends analysis, and in risk management decisions.
    The protection of public health under the Clean Air Act is 
at the core of the Act. However, the traditional approach under 
the Act is to equate ambient air concentrations with adverse 
health effects. However, it is actual exposure, and not air 
concentrations, that is the critical factor in determining 
potential adverse health effects. Exposure is the link between 
ambient concentrations and human health impacts. If we focus on 
exposure rather than just on ambient numbers, we will gain a 
much greater and more accurate picture of public health 
impacts. Continued reliance solely on ambient numbers may not 
produce a corresponding benefit to public health.
    So we believe it is important to continue our exposure 
research, and the Leland Center will continue to pursue this 
area. Thank you.
    Senator Inhofe. Thank you, Ms. Kerester. I think you all 
understand that your entire statement will be made a part of 
the record.
    Ms. Kerester. Yes.
    Senator Inhofe. Dr. Graham.

    STATEMENT OF JOHN D. GRAHAM, DIRECTOR, CENTER FOR RISK 
     ANALYSIS, HARVARD SCHOOL OF PUBLIC HEALTH, BOSTON, MA

    Mr. Graham. Thank you, Mr. Chairman. It was about 10 years 
ago that I first testified before this committee on President 
Bush's proposal to amend the Clean Air Act, a proposal that was 
expanded into what we now call the 1990 amendments to the Clean 
Air Act. We have learned a great deal during that process. You 
have heard some of the good news.
    First, the total benefits of the 1990 amendments appear to 
be greater than the total costs. But it is important to 
remember that virtually all those benefits are packed into just 
two of the provisions of the Act, the sulfur trading program, 
and the chlorofluorocarbons parts of the Act. A lot of the rest 
of the Act flunks a cost-benefit test by the kinds of numbers 
that the Agency is producing.
    Second, that grand experiment with incentive-based 
programs, the sulfur trading, that explains why a lot of the 
cost estimates that were originally made were so far off, 
because we have given strong incentives in the market economy 
for people to trade and find the least-cost ways of achieving 
these results. It is very important to keep that in mind 
because a lot of people were opposed to those market-based 
instruments, said they would never work, would never clean up 
the air, and those incentive-based programs have, in fact, been 
quite effective.
    I would like to focus my testimony on five problem areas in 
the Act that I want to encourage the committee to investigate 
further during this process of reauthorization.
    Problem 1. Some provisions of the Clean Air Act are 
unworkable because they do not require or permit EPA to weigh 
risk, costs, and benefits. A concrete example, as Senator 
Voinovich has given, is the primary ambient air quality 
standards. The basic idea was to set this level of pollution in 
the air so that it would protect public health with an adequate 
margin of safety.
    The problem is scientific information alone cannot identify 
such a level for many of these pollutants. Indeed, the only 
safe level of exposure to many of these pollutants, fine 
particulates and lead, given current science, would really be 
zero. As a result, the only logical conclusion would be to set 
the standards at zero. However, obviously, it is not realistic 
or feasible to set them at zero. So EPA, therefore, is forced 
to construct imaginative, spurious explanations for what 
numbers they come up with to define the safe level of 
concentration in the air. This dishonest process contributes to 
an atmosphere of arbitrariness, mistrust, and litigation that 
we have already discussed this morning.
    It seems to me Congress could make a constructive step in 
this process by either authorizing or requiring EPA to consider 
whether the incremental costs of an air quality standard are 
grossly disproportionate to the anticipated benefits of the 
proposed standard.
    Problem 2. Although Clean Air regulations are intended to 
reduce risk to public health, they sometimes cause unintended 
dangers to public health because the risks of the regulation 
are not analyzed carefully by Congress and EPA when policies 
are made. A good example that we're all aware of right now is 
the requirement in the 1990 amendments to increase the 
oxygenated content of gasoline. It was done without preparing a 
careful risk-benefit analysis. I am not talking about the cost 
side; I am talking about the human health and ecological 
implications of this requirement. The most important chemical 
used to comply, MTBE, is now showing up in surface and ground 
water, and questions are being raised about whether it was such 
a good idea in the first place after all.
    This is a good example of where Congress should insist that 
both itself and EPA take the hippocratic oath that physicians 
take. We should make sure that we have enough science behind a 
decision to, in fact, be assured that we are doing more good 
than harm with a clean air regulation.
    Problem 3. Congress and EPA sometimes pursue clean air 
goals without taking account of national objectives, such as 
energy policy. In my written testimony, I give you the example 
of the diesel engine which is being encouraged in Europe today 
and discouraged in the United States, with difference 
consequences for global warming.
    Finally, I make detailed comments, that several Senators 
have also quoted, on the lack of public health science behind a 
variety of these regulations. And I look forward to the 
comments and questions.
    Senator Inhofe. Thank you, Dr. Graham.
    Professor Revesz?

     STATEMENT OF RICHARD L. REVESZ, DIRECTOR, PROGRAM ON 
 ENVIRONMENTAL REGULATION, NEW YORK UNIVERSITY SCHOOL OF LAW, 
                          NEW YORK, NY

    Mr. Revesz. Thank you, Mr. Chairman. I would like to 
discuss a number of issues concerning the possible use of cost-
benefit analysis under the Clean Air Act.
    As you know, the primary benefit of many environmental 
statutes is the number of human lives that are saved as a 
result of environmental regulation. There is general agreement 
that the starting point for obtaining a value for life for 
cost-benefit purposes is by reference to the wage premiums that 
workers obtain in jobs that entail a risk of instantaneous 
death in industrial accidents. Though the value of life figures 
that are obtained in this manner need to be adjusted upward to 
obtain a meaningful valuation of the benefit to environmental 
regulation, for several reasons.
    The first reason is that the risk assumed by individuals 
who subject themselves to possible industrial accidents is a 
risk that is assumed voluntarily. In contrast, the risk of 
exposure to environmental contaminants like air pollutants is 
assumed involuntarily. There is an extensive literature showing 
that individuals assign greater value to avoiding risks that 
are thrust upon them involuntarily than to risks that they 
incur voluntarily.
    On a related matter, valuations derived from the study of 
risky jobs are the valuations of a relative small subgroup of 
the population with a disproportionate tolerance for risk, 
because these are the people who fill the jobs at the smallest 
wage differentials. But for environmental policy, what matters 
is the valuation of the median individual and not the valuation 
of an individual with a disproportionate tolerance for risk.
    A second set of upward adjustments is necessary is because 
individuals who take risky jobs generally have lower than 
average income. And there is also consensus among economists 
that the valuation for life that derives from these techniques 
is essentially a function of income. Given the median incomes 
of workers in risky occupations and the population as a whole, 
an upward adjustment in the value of life is necessary if one 
makes regulation for the population as a whole.
    A third point is that with respect to some contaminants, 
like carcinogens regulated under section 112, an upward 
adjustment needs to account for the dreaded nature of the harm 
as opposed to the case of simple instantaneous death, because 
in addition to the loss of life itself, one needs to value two 
other components: the very painful and often extended period of 
morbidity that precedes the death, and the dread aspects of 
cancer itself.
    Some policy analysts have suggested a downward adjustment 
to the value of life obtained in workplace studies must be 
performed in certain instances to account for the fact that the 
beneficiaries of certain environmental programs are older 
individuals who have shorter life expectancies and that these 
individuals sometimes are not in good health. These analysts 
argue that the remaining life expectancy of older individuals 
should be multiplied by a value for a life year, and they 
obtain a value for life years by assuming that workers who take 
risky jobs and are relatively young value each of the remaining 
years the same amount.
    This methodology assumes that the value of a life year is 
the same regardless of one's remaining life expectancy. Thus, 
it overlooks a critical aspect that scarcity plays in 
determining economic value, which implies that individuals will 
value life years more highly when they have fewer life years 
left.
    The use of values for quality-adjusted life years is also 
generally inappropriate. The measure of benefits in cost-
benefit analysis is derived from the aggregation of the 
willingness to pay of all of the individuals affected by a 
policy. The QALY technique, the quality-adjusted life year 
technique, in contrast, relies heavily on the assessment of 
third parties, sometimes health individuals and medical 
professionals, of how undesirable a life in poor physical 
condition is relative to a healthy life. As a result, the QALY 
rankings generally have no connection to individual willingness 
to pay and, therefore, cannot properly be incorporated into 
cost-benefit analyses.
    For many environmental contaminants the harm does not occur 
contemporaneously with the exposure. And for such latent harms, 
it has been the policy of the Office of Management and Budget, 
in its review of Agency regulations under Executive Order 
12866, to apply a discount rate to reflect the fact that the 
benefit of regulation does not accrue until the future.
    OMB currently uses a discount rate of 7 percent. As 
explained in more detail in my written testimony, there is a 
general consensus among economists that this rate is too high 
and that an appropriate rate is somewhere in the 2 to 3 percent 
range. In fact, the 2 to 3 percent rate is the rate used by 
both the General Accounting Office and the Congressional Budget 
Office in running their projections. The OMB approach leads to 
substantial undervaluation of the benefits of human life. So 
environmental benefits that OMB determines to be $100 million, 
if they involve a harm that has a latency period of 20 years, 
should, in fact, be $236 million. They are off by more than a 
factor of two.
    And last, let me mention that in the past, and in OMB's 
administration of cost-benefit analysis, this technique has 
been coupled with procedural devices that have often turned 
into an anti-regulatory tool or threatened to turn into an 
anti-regulatory tool as opposed to a tool designed to make 
regulation more rational. I will just list four devices.
    First, cost-benefit analysis is typically invoked only to 
justify the adoption of regulations, not to justify the repeal 
of regulations or to justify the failure to adopt more 
stringent regulations. Second, in OMB's administration of this 
technique, there is often limited disclosure of communications 
between the public and OMB. Third, some of the cost-benefit 
bills that have been introduced in Congress since 1985 contain 
judicial review provisions that provide for review prior to the 
promulgation of regulations, which would have been, I believe, 
a recipe for paralysis in the regulatory process. And fourth, 
some of these bills contained a petition process coupled with 
judicial review under which previously enacted regulations 
could be challenged. And this also, if it is not done 
carefully, will be a recipe for regulatory paralysis. Thank you 
very much.
    Senator Inhofe. Thank you, Professor. Let me just pursue 
that a little bit. You raise some interesting points regarding 
the calculating of benefits based on what people are willing to 
pay. An example you used in your written testimony is radon gas 
versus pesticides, not really the best example when you think 
that it's an invisible gas as opposed to something that people 
eat.
    I think there are additional limitations that you don't 
mention. First, people say that they will pay more to protect 
the environment, and yet when given the choices after extensive 
advertising campaigns on using premium gas for environmental 
purposes, they always opt out to buy regular unleaded almost 
every time. Second, when people feel removed from the costs of 
these things, they assume that somehow big business is paying 
for this, not realizing that is passed on to the ultimate 
consumers. I think that these new standards probably would have 
had the effect in Oklahoma, we calculated on the ozone and PM 
standards, to raise the utility rates in Oklahoma by about one-
third. Since we don't have unlimited resources, wouldn't it 
make more sense to prioritize our regulatory decisions basing 
them more on exposure than a risk-risk analysis?
    Mr. Revesz. Well, my suggestions went to how cost-benefit 
analysis should be conducted appropriately. I was not here to 
advocate the cost-benefit analysis be conducted or to oppose 
that. It seems to me that the unit for cost-benefit analysis is 
an individual willingness to pay. Unfortunately, we can't 
measure directly what we would like to know. So we have to deal 
with proxies, and we generally agree that the proxy to start 
with is by reference to the wage premiums individuals take in 
these risky jobs. Then the question is, how do you adjust that 
to make it relevant for what we are trying to regulate?
    Now, I certainly agree with you that contingent valuation 
studies where individuals are asked how much would you be 
willing to pay to do this or that are not ideal, and that is 
why economists generally prefer to do revealed preference 
studies where they actually look at what people do in the 
marketplace. For example, what wage do you demand to take these 
risky jobs, and then from that derive an implicit valuation.
    But, unfortunately, there are some areas in which 
contingent valuations are the only way to go because there is 
no other way to measure what we want to measure. I think, like 
everything else, there are better contingent valuation studies 
and there are worse contingent valuation studies. And, 
obviously, if we are going to base a regulatory program on 
these sorts of valuations, we have to do the better ones.
    A number of years ago NOAA empaneled a blue ribbon panel of 
economists, chaired by Kenneth Arrow, who is a Nobel Prize 
winner, to help NOAA decide whether contingent valuation 
studies could be used in the context of natural resource 
damages. The panel was somewhat skeptical, but, in the end, 
gave contingent valuation a cautious endorsement, saying it was 
the best we could do at this point, and we should do it as well 
as possible. And it had some blue prints for how to do it 
better. That is what I believe we should be doing.
    Senator Inhofe. All right. Thank you.
    Ms. Kerester, when Senator Lieberman was making his opening 
statement, he was talking about the asthma rates are up due to 
smog. Now you referred to the indoor air. During the 
PM2.5 debate, the effective indoor air was raised by 
scientists but it seems to me it was ignored by the EPA. When 
you state that indoor exposures are important, are you just 
referring to chemical exposures, or particles as well? I think 
they were talking about dust and cockroach droppings and a 
number of other things, too. What is your feeling about that?
    Ms. Kerester. Well, both indoor and outdoor sources are 
important for both air toxics and for----
    Senator Inhofe. I mean, what percentage of time does the 
average person spend indoors as opposed to outdoors?
    Ms. Kerester. Almost 90 percent in many cases. People spend 
the majority of their time in the inside locations.
    Senator Inhofe. Did you agree with my statement that it 
appears to me, from going through this thing, that the EPA was 
almost entirely concerned with outdoor as opposed to indoor?
    Ms. Kerester. That is my understanding, yes.
    Senator Inhofe. And real quickly, Dr. Graham, you heard the 
responses to some of the quotes that I hope I was accurately 
quoting you from your written testimony. Do you have any 
comments to make about that?
    Mr. Graham. Yes. First, I was pleased to hear the agreement 
with the concern that was raised about where the Agency is in 
updating the scientific content of its cancer guidelines. This 
was a process that began in 1988 and there are repeated 
assurances that we're working on it, we're continuing to look 
into it. But it is a process that has been I think very 
unfortunate, because it sent a signal in the scientific 
community that the Agency isn't necessarily that interested in 
modernizing their scientific cancer risk assessment guidelines.
    A concrete example of that is occurring right now with the 
chemical chloroform, where though this chemical causes tumors 
in animals at very high doses, there is good biological science 
suggesting that at very low doses of human exposure those 
tumors would not occur. EPA scientists recommended this science 
be used, but then that was overturned, and it now looks like we 
are, in fact, not going to have that biological information 
included in EPA's process.
    So I think it is very important for this committee to put 
heat on the Agency to make sure they incorporate science into 
their risk assessment processes.
    Senator Inhofe. You heard Senator Baucus when he talking 
about that, and I agree with that. I do want to see that there 
is a place for science. One of the things that I have wanted to 
do, and I have talked to Senator Voinovich and others about 
this, we have in place in our statutes CASAC, the Clean Air 
Science Advisory Committee, and then we have others dealing 
with things other than air, and I would like to see them more 
involved in the initial process, prior to the time that a rule 
comes out, so that we have the benefit at that very early point 
of the science that is involved in the suggested rules. What 
are your thoughts about that? Any of you.
    Mr. Graham. I certainly agree with the general principle 
that you want to get scientific peer review involved early in 
the process of an agency's deliberations. One of the points 
Professor Revesz made, which I think is a good one, is that 
having an agency like OMB very late in the game trying to do 
review, oftentimes with only economic expertise and with no 
biological or chemistry expertise, you are not setting up a 
very effective peer review process for agency risk assessment 
and for agency decisionmaking. So more peer review by the 
scientific community, and scientists with different 
disciplines, early in the process I think is much more likely 
to produce sensible regulation than counting on OMB to pull 
fixes at the last minute.
    Senator Inhofe. Any other comments?
    [No response.]
    Senator Inhofe. Senator Voinovich.
    Senator Voinovich. Ms. Kerester, I testified before this 
committee when they were considering the ozone and particulate 
standards, and there was a mayor of a Texas city that was there 
and she was asthmatic and talking about the fact that the stuff 
inside of her house had more of an impact on her asthma than 
the air outside. Is there any way that you think, if we said 
the reason why we have these goals and these standards is to 
protect public health, that you could work in some provision 
that says that if we conclude that the problem is more internal 
than external, and of course we have more control over the 
external because we can do that on a national level, but of 
making recommendations to local political subdivisions. For 
example, and I am not being facetious, but we concluded that we 
might be able to do more about asthma in some of our inner-
cities by strict code enforcement, and even some suggested 
buying air conditions, than we could going to new standards 
that would require enormous expenditure by businesses and 
political subdivisions.
    Ms. Kerester. There may be some just relatively minor steps 
or recommendations that EPA could make to the public. For 
example, airing out clothes that you bring home from the dry 
cleaner, letting those air outside before you bring them into 
the home; venting out the home, opening the windows and 
bringing in some fresh air. Those are kinds of relatively minor 
examples. For children with asthma, it may be using a 
particular kind of vacuum cleaner or altering the products that 
are used in the home.
    Senator Voinovich. It seems to be that part of it is being 
ignored and it seems that perhaps that ought to be taken into 
consideration when they are dealing with a problem that is of 
concern to all of us, to make some rather practical 
recommendations that might do a whole lot more to help 
asthmatic people than their proposed ozone and particulate 
standards.
    Dr. Graham, critics of risk assessment and cost-benefit 
analysis contend that such analysis would elevate cost in a way 
that would value dollars over lives and the health of citizens. 
I would like you to respond to that. We keep hearing that those 
of us that are interested in good science and risk assessment 
are less concerned about human life than those that aren't.
    Mr. Graham. Senator Voinovich, I think it is a good issue 
to raise. The first point I think we should keep in mind is 
that the economic welfare of a family, the income of that 
family and its wealth position, the employment status of the 
mother and father in that family, they have a powerful impact 
on the human health of both the parents and children in that 
family. We should not underestimate the importance of the 
material well-being of the household in influencing their 
health.
    The examples that you gave in the State of Ohio, when a 
region of a State is declared to be in nonattainment and 
businesses don't expand or come into that community, that is 
not only an economic issue, that is a public health issue for 
the parents and children in those families. So I think we 
should not draw this sharp separation that public health is 
over here and economics is over here. The two are, in fact, 
very intimately tied. So I think we do have to bring some 
discussion of the economics into the Clean Air Act.
    Senator Voinovich. I will never forget running into a woman 
in Steubenville, Ohio, she was an immigrant, and she said I 
remember when the air was dirty and I put the clothes out and 
they got soot on them. And she said now the air is cleaner and 
nobody has a job. Some of those considerations, that is an 
extreme example, but the fact is that if your economic 
condition is lessened in a community and people are unable to 
have a job and are not able to buy health insurance, for 
example, or they don't have a job that provides health 
insurance, that has I would think a more substantial impact on 
their well-being than does the standards for ozone and safer 
particulate matter.
    Mr. Graham. Senator Voinovich, I think the example you are 
giving is not just hypothetical or anecdotal. In my written 
testimony, I describe one of the examples of the regulations 
under the Clean Air Act that deals with a part of the steel 
industry called coke production. The basic idea in the 1990 
amendments was that we were going to force innovative 
technology on this industry so they would clean up all of their 
pollution. In fact, what my testimony indicates is that in a 
number of cases what steelmakers have done is simply shut down 
their cokemaking operations and are now importing coke from 
Eastern Europe, and from China. I think any careful 
environmental analysis of what is going on in that industry 
would indicate that we are having less economic productivity in 
this country and we are having more air pollution in other 
countries.
    Senator Voinovich. I will just finish up with this. We have 
heard criticism of risk assessment and cost-benefit. They say 
it will slow down the rulemaking process. I recall in testimony 
before the Governmental Affairs Committee, and you testified 
regarding Senators Levin and Thompson's Regulatory Improvement 
Act, we heard testimony that risk assessment and cost benefit 
analysis may actually speed up the process on implementing 
sound scientific regulations because it allows everyone to know 
up front what information was used during the decisionmaking 
process. I would like you to comment on that.
    Mr. Graham. Yes. I think a good example of this is the 
primary ambient air quality standards, where the law says you 
shall not consider the cost of these standards. But everybody 
in this town knows that you have got lobbyists running all 
around talking about costs all the time, you have got 
administrators who are making public statements about cost, yet 
supposedly we are not considering costs at all.
    I think a far better idea would be to allow costs to be 
talked about explicitly and let the claims about costs be 
scrutinized. In many cases, those claims will be scrutinized 
and shown to be exaggerated, which will result in more 
consensus about in fact what the policy should be. So by 
driving the whole cost-benefit discussion underground and by 
making it secret, we don't make the process any more 
trustworthy, and we don't make the process any quicker.
    Senator Inhofe. Yes, I think that is significant. I was 
just discussing it with Andrew here, that back during the 
ambient air debate, EPA was saying the cost of the change in 
those standards would be approximately $6 billion, then the 
President's Economic Advisory Council came out with about $60 
billion, and then of course the group that was out in 
California came up with $120 billion. I think your idea of 
scrutinizing these variances is very good and very significant 
because they are going to talk about costs and they are going 
to talk about it in a very emotional way that is not being 
scrutinized and evaluated. When you have a variance from $6 
billion to $120 billion a year, you need to talk about it.
    Mr. Graham. Right. And you need scientific peer review of 
the economic projections, the technological and engineering 
projections that underlie those types of cost estimates.
    We heard this morning from the gentleman from the 
Environmental Protection Agency that they don't consider costs 
when they do primary ambient air quality standards, yet the 
White House was, the Council of Economic Advisors was, the 
Treasury Department was. EPA was probably the only place in 
town that was saying publicly we don't consider costs, yet even 
they issued a cost-benefit analysis of that regulation.
    So one has to have a certain cynicism about this process 
where we say we are setting this number just to protect the 
public health without regard to cost and everybody is doing 
cost analyses. I think we ought to bring it out in the open, 
make it more rigorous, and build it systematically into the 
process.
    I think one of the points that was made by Senator 
Lieberman and Senator Baucus, which I think is a good one, is 
the nature of the cost-benefit test at the stage of an air 
quality standard should be different than the nature of a cost-
benefit test at the final source or emissions standard. I think 
you have to be much more lenient and flexible in the cost-
benefit test because you are asking the Agency to forecast 
costs to the entire industrial economy. When you have a 
specific source standard or emission standard, I think you can 
be more strict in the kind of cost-benefit test you insist 
upon.
    Senator Voinovich. Mr. Chairman, may I?
    Senator Inhofe. Yes. Take all the time that you want.
    Senator Voinovich. I was thinking, and you I recall 
testifying when I was with the National Governors Association, 
we had a hearing on the question of where do you invest your 
dollars. So often the public's perception of what an 
environmental problem is is not connected with the real 
problem. In other words, because an issue comes up and people 
get excited about it and the Agency starts to deal with it, if 
you sit back and you look at what are the real problems, 
something else may be even a much more severe threat to public 
health than, say, some other problem.
    I wonder if there were some way, and I would be interested 
in your reaction, as part of the amendments to the Act, to get 
the Agency, and maybe they have done this, but to sit down and 
really do an analysis of what are the real severe problems that 
are confronting the country and what have the largest impact on 
public health and direct their attention to those, rather than 
to go off maybe in some other direction where they get people 
to spend a lot of money and where we could be utilizing the 
dollars that are available in a much more effective way. There 
is X number of dollars available at the local level, political 
subdivisions, State government, business. The issue is how do 
you get them to use the dollars that are available, in terms of 
environmental, in the most cost-effective way to get a real 
return on your investment. Is there some way that could be 
done?
    Mr. Graham. Senator Voinovich, I think that there is, in 
fact, a strong usefulness of cost-effectiveness methodology to 
identify where we can save the most lives, do the most for 
public health for a given amount of expenditure. You heard 
already good testimony from Ms. Kerester about indoor air 
pollution. I think any fair analysis is going to show that 
additional investments are likely to give big gains in indoor 
air pollution control compared to outdoor air pollution 
control. I think they will also show that investments in 
outdoor particulate control are going to give you more benefits 
than investments in more air toxics control. The problem is the 
Clean Air Act was broken up into these pieces and nobody has 
responsibility for identifying where we can save the most lives 
with our clean air dollars.
    Senator Voinovich. That might be a good idea.
    Senator Inhofe. Well, I only have one last thing. We are 
taking a little longer here because we are down to two 
Senators. Maybe that will encourage better attendance.
    I heard Mr. Perciasepe say right before I had to excuse 
myself and testify at the Senate Armed Services Committee that 
when the D.C. Circuit Court made their decision they did not 
consider science. Yet, in their remanding statement, they did 
refer to the negative UV effects on people. Now, isn't that 
science? Do you have any comments about that particular 
decision?
    Mr. Revesz. Let me address that, Senator.
    Senator Inhofe. Yes.
    Mr. Revesz. There were references to scientific issues in 
the decision, but the rationale for sending the standards back 
to the Agency was that the court felt that the statute had not 
appropriately constrained the discretion of the Agency in 
setting the standards, and that the Agency itself had not 
appropriately constrained its own discretion and had not 
appropriately explained why it had gone down to where it had 
gone down and not had gone down further, because, after all, 
going down further, as Professor Graham explained, would have 
saved more lives, done more good. As I read that case, I think 
that was the primary rationale of the D.C. Circuit and they 
sent the regulation back to the Agency for the Agency to try to 
articulate some standards that were going to guide it in the 
future I guess in promulgating National Ambient Air Quality 
Standards for these pollutants.
    So it was not primarily a scientific decision. It was an 
invocation of the nondelegation doctrine that primarily made 
these standards go back to EPA.
    Mr. Graham. Mr. Chairman, my understanding was they ruled 
as a unanimous part of that court's opinion that dealt with the 
smog and the ozone standards, and they did indicate that the 
Agency had not in any way considered the scientific evidence 
that ultraviolet radiation can cause skin cancer, cataracts, 
and that should be balanced against the ozone control benefits 
in the standard. That's the kind of hippocratic oath provision 
that the court is trying to bring into the law that I think 
Congress should just cut short and put it right into the 
statute itself.
    Senator Inhofe. I see. That is a very good point.
    Do you have anything else, Senator Voinovich?
    Senator Voinovich. No, I haven't.
    Senator Inhofe. Thank you very much. And by the way, all of 
the members are represented by staff here. You will be 
receiving questions for the record. So there are more people 
here than you are looking at right now. We appreciate it very 
much.
    Senator Inhofe. I would hope, while the next panel is 
coming up, if we can get science introduced into this at an 
earlier stage, that we will have less emotional approaches. I 
can remember, Senator Voinovich, the very first hearing we had 
on the proposed changes in the ambient air standards on ozone 
and PM. They brought in all these kids with white masks from 
some hospital. It makes great for TV and all that, but it 
really does not help in getting to the truth and what we are 
trying to accomplish here. In fact, I can remember asking those 
kids how many of them use CFCs in their inhalers, and they all 
said they did, and I asked if they were aware that it was my 
understanding that the EPA and the FDA were working on programs 
to ban CFCs from their inhalers. So that kind of changed their 
attitude toward this thing.
    We now have the third panel, which includes Mr. Michel 
Benoit, executive director of the Cement Kiln Recycling 
Coalition; Mr. Bernard Melewski, counsel of the Adirondack 
Council; and Mr. Bill Tyndall, who has been here before, vice 
president of the environmental services, Cinergy Corporation, 
on behalf of Edison Electric Institute.
    It is nice to have you back again, Bill. Why don't we just 
go ahead and start with you since you are the experienced one 
at this table.
    Mr. Tyndall. I believe Mr. Melewski was there the same day, 
so we are sort of tied.
    Senator Inhofe. Oh. Well, let's start with Mr. Melewski 
then. You're on.
    [Laughter.]
    Mr. Melewski. All right. That was neatly done.

   STATEMENT OF BERNARD C. MELEWSKI, COUNSEL AND LEGISLATIVE 
            DIRECTOR, ADIRONDACK COUNCIL, ALBANY, NY

    Mr. Melewski. With respect to the long involvement of the 
Adirondack Council, a not-for-profit organization formed 25 
years ago to protect the Adirondack Park in New York--the 
largest park of any kind in the lower 48 States, a six million 
acre park of public and private land--our involvement in the 
protection of the park and acid rain is very well documented in 
our written testimony. I want to go directly to a couple of 
main points.
    One of the features that we have found useful, informative, 
and wise on the part of Congress in the 1990 Clean Air Act 
Amendments was the requirement that EPA, and then NAPAP, the 
National Acid Precipitation Assessment Program, which is 
comprised of multiple agencies in the administration, should 
report to Congress progress of the Clean Air Act Amendments, 
particularly the sulfur cap and trade program. Congress can 
make an assessment of the success or problems of that program. 
There have been two reports: one by EPA in 1995, and just 
recently a report was made available by NAPAP. I would like to 
address the two major conclusions which we think are fair to 
make from those two reports.
    First of all, the market-based mechanism--the cap and trade 
mechanism--is an overwhelming success. The Adirondack Council 
has been hawking this process. In fact, we took the Agency to 
court and I am happy to report that was resolved only just 2 
weeks ago. We agree that the mechanism is an overwhelming 
success. It is extremely cost-effective. There is 100 percent 
participation, which is outstanding and almost a minor miracle. 
And it is accomplishing its primary task, which is to reach a 
particular cap in tonnage of SO2, probably in 
advance of the schedule set by Congress.
    Unfortunately, the second finding of these two reports is 
that the primary goal of the 1990 Clean Air Act Amendments, 
Title IV, which was to solve the acid rain problem and protect 
sensitive resource areas, is not being accomplished. In New 
York, it is particularly hard to accept that these report find 
that without additional reductions, we will lose over half the 
lakes of the Adirondack Park. And we have seen extensive damage 
in the Adirondacks, not just limited to the impacts of acid 
rain directly to the forests and the fish and wildlife of the 
park, but also it is extensively documented now that there is a 
public health impact. The document that I have included in our 
testimony discusses these issues.
    For example, in the last year and a half, the Public Health 
Department of New York has issued fish consumption warnings for 
15 lakes in the Adirondack Park and for three of the high 
elevation reservoirs for the New York City water supply because 
of mercury contamination via bioaccumulation in the fish. And 
the source is acid rain, both directly and indirectly.
    The other major conclusion of these reports is that the 
problem is not just isolated to the Adirondack Park. It is an 
extensive problem that reaches from Maine to Georgia. In fact, 
all high elevation areas throughout the country, including 
Colorado and California, are now seeing the impacts of nitrogen 
saturation and soil acidification. Also our coastal estuaries, 
from Narragansett Bay to Long Island Sound to Chesapeake Bay 
and Tampa Bay, are seeing impacts from nitrogen loading.
    So the problem is not limited just to New York; the problem 
is most severe in New York and we are in danger of losing the 
resources of our park. We were very pleased to have our 
organization, which is a small regional organization, joined by 
many organizations in an open letter to the public just 
recently, which I have up there, called ``Your Best Chance to 
Stop Acid Rain Once and Forever,'' alarmed by the findings of 
the NAPAP report, and joining in the consensus that something 
more has to be done. The impacts of acid rain are felt here in 
the Capital as well. What is perhaps forgotten about acid rain, 
it has a severe impact on our monuments throughout the Capital 
and, in fact, our Civil War cemeteries in Gettysburg and 
Vicksburg. It is, unfortunately, very well documented by a 
publication of the U.S. Department of the Interior called 
``Acid Rain on our Nation's Capital: A Guide to Effects on 
Buildings and Monuments.'' It is actually a walking tour, that 
I urge you to take, demonstrating the damage to monuments such 
as the Lincoln Memorial, the Jefferson Memorial, and the 
Capitol Building itself.
    We make two recommendations, quite briefly, and that is 
that we go back to the 1990 Amendments and Title IV and we make 
further reductions in sulfur, along the lines recommended in 
the reports; and that you also consider a national cap and 
trade program for nitrogen, because the reports also indicate 
that nitrogen is a big factor in acid rain. We know in New York 
that as the snow pack builds in winter, and nitrogen and the 
acidity of the snow pack builds, and an acid shock occurs to 
lakes and streams with the melt in the spring.
    In conclusion, I would like to advise you that just in a 
matter of hours the Republican Governor of New York, George 
Pataki, will announce that he is directing his commissioner to 
develop regulations along the lines recommended by these two 
reports to make cuts in both sulfur and nitrogen to address 
acid rain in the next several years. Thank you.
    Senator Inhofe. Thank you. I am glad you clarified that. I 
thought you were going to say he was going to announce for 
president.
    [Laughter.]
    Senator Inhofe. Mr. Tyndall.

      STATEMENT OF WILLIAM F. TYNDALL, VICE PRESIDENT OF 
ENVIRONMENTAL SERVICES, CINERGY CORPORATION, CINCINNATI, OHIO, 
             ON BEHALF OF EDISON ELECTRIC INSTITUTE

    Mr. Tyndall. Thank you, Mr. Chairman. My name is Bill 
Tyndall. Since August 1998, I have served as the vice president 
of environmental services for Cinergy Corporation, an electric 
utility based in Cincinnati, Ohio that provides 1.4 million 
electricity customers and 470,000 gas customers with service in 
Ohio, Indiana, and Kentucky.
    Prior to joining Cinergy, I served Congressman Dingell as a 
minority counsel to the House Commerce Committee where I worked 
on Clean Air Act issues. I also worked on the Safe Drinking 
Water bill and represented Mr. Dingell and the Commerce 
Committee Democrats on that bill from subcommittee markup to 
signing by the President. I am very familiar with the 
standards-setting provisions and think there is a lot of 
overlap between the two bills and the cost-benefit provisions 
that were unanimously agreed to in that bill.
    Still earlier, I was at EPA where I served as a policy 
advisor in the office of Air and Radiation. And I also was in 
the General Counsel's office, where, I should add, I was in the 
early 1990's peacefully minding my own business when I received 
a phone call regarding a situation in Lorain, Ohio and an 
expansion by Colby Steel of a facility there, and I actually 
came in and helped negotiate a settlement of that issue that I 
think resolved both EPA's concerns and allowed the project to 
go forward and lifted the stop work order.
    But, in short, I am speaking to you as someone who has 
spent nearly 10 years addressing air policy issues from a 
variety of perspectives. I am today, as was said, appearing on 
behalf of Edison Electric Institute.
    I would like to start by echoing what other witnesses have 
said. The Clean Air Act is working. We are seeing reductions. 
There have been dramatic reductions across the board from 
industrial categories. From the utility industry we have seen 
reductions in all the major pollutants. With full 
implementation of the acid rain program, for instance, which we 
are just in Phase I of, Phase II will start and will drive 
reductions in the next 10 years, we will see a total 7.5 
million tons being removed from the air. We have had a 
particulate emission decline of 1.8 million tons, almost an 
order of magnitude since 1970. And has also been pointed out by 
other witnesses, these reductions have occurred in the electric 
utility industry against a background of growth that has 
matched the line that EPA put up on the board of the GNP.
    Utility growth in terms of sales has increased between 1970 
and 1996 120 percent, or some 13 billion kilowatt hours. So 
against a background of steady increase over 30 years, there 
has been steady declining of emissions. Of course, these 
emission reductions have had a price. Based on data filed by 
utilities, over $32 billion has been spent on controls alone.
    As we look to the challenges of the next 10 years, to talk 
a little bit about what the committee is interested in in 
looking at the Clean Air Act and the structure of the Clean Air 
Act, it is obvious to anyone such as myself who must plan for 
additional compliance that powerplants are facing a myriad of 
uncoordinated, overlapping, and inconsistent regulatory 
requirements. In large part, the structure of the Act itself is 
responsible for this. The multiple programs under the Act all 
are driven by separate statutory requirements which, in fact, 
are aimed at the same pollutants from the same sources.
    I have put up here for the committee two charts that show 
for NOx controls and then for SO2 controls all the 
various programs that are coming at us along with a guesstimate 
of when they might hit. Of course, as you sit there and try to 
do planning, I have to both guess as to when it is going to hit 
and what the level of reductions will be. There also are a lot 
of different questions about the stringency or the flexibility 
of the program. To give one example that Mr. Melewski's 
testimony brings up, if you look at NOx controls from the point 
of view of the NOx SIPP call, it asked us to do seasonal NOx 
reductions. Seasonal NOx reductions means during the ozone 
season, during the summer we are going to make reductions in 
NOx. That is a hundred day period. The technology that may be 
most cost-effective, depending on your plant, may be SNCR, 
which is an injection into your boiler which doesn't require 
high capital costs up front but has very high overhead and 
maintenance costs. But if you turn around and tell me 3 years 
later that I am going to have to do year round controls, then I 
have just made the wrong decision because for year round 
controls the SCR technology, where we essentially hang a filter 
20 stories up on a plant and filter the emissions coming out of 
the boiler, is the better technology because while the initial 
capital costs are higher, the O&M is lower. So if I have to run 
it year round, that becomes a better technology.
    EPA, of course, is putting us on this mad rush for 2003 to 
meet the 0.15 for the seasonal reductions and is setting up a 
compliance requirement that is basically going to then put us 
in a position where, if we are asked to make year round 
reductions, we have made some wrong decisions about compliance. 
So then we will either have wasted money and have go back and 
make changes, or there will be a lot of companies that will say 
wait a second, forget it, we already invested, we put on these 
controls and we are not doing anything more. And the issues 
that he legitimately brings forward will face that kind of 
opposition that it didn't need to if you can line up the 
requirements.
    So I would close with the following observation. I think 
the utility industry is unique in facing this level of 
regulatory complexity because of the various programs. In that 
sense, it may be, and it is certainly Cinergy's view, that 
there may need to be a comprehensive approach for utilities 
that establish us with long lead times, with flexibility, with 
phase-ins, with early reduction credits, the kinds of things we 
know reduce costs, but sets up requirements so that we can do 
planning and understand what we are going to be required to 
meet. And with that, I think you can have a situation where 
both of us can come in and testify in favor of the same 
provision. And with that, I will conclude.
    Senator Inhofe. Thank you.
    Mr. Benoit?

STATEMENT OF MICHEL R. BENOIT, EXECUTIVE DIRECTOR, CEMENT KILN 
                      RECYCLING COALITION

    Mr. Benoit. Thank you, Mr. Chairman, Senator Voinovich. 
Good morning. Thank you for inviting me to testify today. I am 
the executive director of the Cement Kiln Recycling Coalition. 
CKRC represents cement producers that recover energy from 
hazardous waste and their kilns. In the United States there are 
118 cement plants located in 37 States; 17 of those recover 
energy from over one million tons per year of regulated 
hazardous waste which they use as a one-for-one substitute for 
coal. That's enough energy to provide the power needs of the 
city of Tulsa for about 8 months. And if I could suggest only 
one change to the Clean Air Act, it is that we believe it 
should accommodate and encourage energy recovery technologies 
that reduce pollution.
    I would like to offer a little bit of background first. 
This is a diagram of a cement kiln. Perhaps you have seen them. 
Cement kilns are very, very large industrial furnaces. They 
produce portland cement. They can be up to or over five hundred 
feet long, they can be over 20 feet in diameter. In other 
words, big enough to drive a tractor trailer through them. They 
are very hot. This is a picture of the inside of a cement kiln, 
an operating kiln. They operate at temperatures over 3,000 
degrees fahrenheit, and they are among the largest industrial 
users of energy. What you see in that picture at the top is a 
coal burner, you see a burner feeding hazardous waste fuel, you 
see the product discharging at the bottom left.
    Since the late 1970's, cement kilns have safely used 
hazardous waste as fuel. These are wastes like paint solvents, 
cleaning solvents, adhesives, printing inks; the kinds of 
materials that need to be managed properly, the kind of 
materials, frankly, that we do not want to see wind up in our 
environment. The critical point to keep in mind here is that 
EPA regulations mandate that these types of waste cannot be 
land disposed. They must be burned in either industrial 
furnaces, boilers, or incinerators, and there is no alternative 
treatment for these types of energy-bearing wastes. Recovering 
energy in cement kilns yields many environmental benefits--
fossil fuel energy resources are conserved, air pollution is 
significantly decreased, greenhouse gas emissions are reduced, 
and the waste materials are put to a productive use.
    EPA has very recently promulgated the Hazardous Waste 
Combustors MACT rule under the Clean Air Act. Since 1994, CKRC 
has been working very closely with EPA on the development of 
this rule. And as you know, section 112 of the Clean Air Act 
instructs EPA to evaluate the emissions control performance of 
industrial sources of hazardous air pollutants. Section 112 
requires EPA to assess the various control technologies and set 
emissions standards at a level of performance of the best 12 
percent. This is known as the MACT floor level.
    Unfortunately, the final Hazardous Waste Combustor MACT 
rule reflects a misuse of the Clean Air Act regulatory process, 
and we do not believe it is consistent with the intent of 
Congress. I have examples that I think bear this out in three 
areas; in the area of economic impact, risk reduction, and the 
use of science and technology.
    In the area of economic impact, the Clean Air Act 
authorizes EPA to set MACT standards that are more stringent 
than the floor level that I mentioned. Section 112 instructs 
the administrator, however, to consider cost and other factors 
before setting such standards. In EPA's past MACT rules, the 
Agency has generally found acceptable cost-effectiveness levels 
for its decisions in the range of about $5,000 to $14,000 per 
ton of pollutant removed, an average of about $8,500 per ton of 
pollutant removed. In the Hazardous Waste Combustor MACT rule, 
EPA accepted a cost-effectiveness level of $500,000 per ton of 
pollutant removed, 60 times higher than the average in all 
previous MACT rules.
    Now, you would expect that at that at high cost levels 
there would be some environmental or public health benefit 
gained. However, in letters to Senators Graham and Hutchison 
responding to some oversight inquiries, EPA addressed the risk 
reduction in the Hazardous Waste Combustor rule and said, ``We 
do not project a reduction in numbers of children with blood 
levels that exceed the Centers for Disease Control intervention 
level.'' Specifically, in the final rule, EPA says that the 
benefit to children's health is a decrease in an incidence of 
elevated blood lead levels of 0.4, four-tenths of a case per 
year out of the entire U.S. population of over 250 million 
people, and we are not sure really how they measured that.
    Third, in the area of science and technology, as you know, 
Congress intended the Clean Air Act in section 112 to be 
technology-forcing. However, in setting the standards for metal 
emissions in the Hazardous Waste Combustor rule, EPA said that 
reducing the amount of waste burned in hazardous waste 
combustors is a control technology. So even though EPA has said 
in other regulations that these wastes have to be burned, there 
are no alternative technologies, EPA concluded in the 
rulemaking that the way to control emissions from these wastes 
is not to burn them at all, or not to burn them in the first 
place.
    The practical effect of this is to force cement kilns to 
burn less waste, to reduce their level of energy recovery, and 
to burn more coal. We don't think that makes sense. In fact, if 
this type of logic is fully extended to a manufacturing 
process, such as an oil refinery, for example, it means that 
the best performing oil refinery will be the one that feeds no 
crude oil to the process.
    Now there are several ways to fix these problems. One, of 
course, is through litigation. CKRC will be filing a petition 
for review on this rule in the D.C. Circuit. Another way, which 
we are here to talk about today, is for Congress to reauthorize 
and amend the Clean Air Act. Our recent experience with the 
MACT program indicates that Congress should be concerned about 
three important points. First, Congress should specify the 
findings necessary to go beyond the MACT floor in setting 
emission standards. Second, Congress should make clear that 
reducing feed to a process is not a control technology. 
Finally, Congress should ensure that the Clean Air Act 
accommodates and encourages energy recovery technologies that 
reduce air pollution. Thank you, and I look forward to 
answering any questions you may have.
    Senator Inhofe. Thank you, Mr. Benoit. The last of your 
statement answered the major question I had to ask you.
    Senator Voinovich?
    Senator Voinovich. I was interested in Mr. Melewski's 
comments. I would be very interested to have the utilities that 
are represented here respond to what you think is a solution to 
the problem. I just want to make two comments about it. One is, 
I am glad you promoted the allowances and credits early on 
because they were used. But you are probably not aware of the 
fact that the Government did everything in their power not to 
allow us to use the allowances. When they initiated the 
process, they went to a cue and it was going to be triggered by 
telephone calls to I guess one of the departments, the 
Department of Energy, EPA.
    When I came in as Governor, Mr. Chairman, we got all the 
utilities together in the United States that were interested in 
going after the credits and allowances and got them all in a 
room, it took a lot of work, and got them all to agree that 
they would share the credits and that it wasn't going to be a 
first come, first serve situation. Because the way it was set 
up was that the first ones would have gotten the credits and 
the rest of them wouldn't have gotten anything. So there was a 
real attempt at that time, I will never forget it, to really 
preclude us from sharing these allowances and allowing 
utilities more time to do some of the things that were 
necessary for them to continue to burn, in some cases, high 
sulfur coal or make other alternatives.
    Second, I followed the acid rain provisions from the 
beginning and was down here as a mayor. One of the things that 
always puzzled me was President Reagan undertook a big study, 
that everybody applauded in the beginning, and, as you may 
recall, the result was they said that the acid rain coming from 
the utilities perhaps wasn't as serious a problem as what 
people made it out to be, but, in the end, those 
recommendations were ignored and they went ahead with those 
provisions. There were very few Senators that voted against 
that legislation. Senator Glenn from Ohio was one of those that 
did because he was concerned about that.
    The question I am asking you is, are you really sure that 
the problems that you are experiencing in terms of the lakes 
and the soil and the fish are caused by the emissions from 
these utilities?
    Mr. Melewski. We are absolutely certain. The report that 
you were referring to in the 1980's was the start of this 
scientific inquiry that has now culminated in not only the 
reports back to Congress, which I said were wise to require, 
but also numerous other studies, including some that have just 
come out last week that continue to verify this correlation 
between the transport of pollution and the subsequent problems.
    Keep in mind also, and I too hope the utilities will react, 
and very favorably. What we are recommending is not changing 
the mechanism, which is working very, very well, especially to 
keep costs down. It provides any particular utility the 
flexibility to come into compliance in the most cost-effective 
manner, and over a long time span that is conducive to business 
planning. The reports do clarify very well that there is a 
direct correlation between the reductions and the deposition in 
sulfur.
    So we know we are doing the right thing to get at the right 
pollutant. The results, the monitoring on the ground which have 
been going on in the Adirondacks since the 1970's on a 
continuous, daily basis of at least 52 lakes in the park, 
document these changes quite well, as well as other studies 
throughout the Northeast. So I think we are on absolutely the 
right track. If you will, what we are proposing is not to 
change policy, but to reaffirm the policy and commitment that 
the Nation made in 1990, which was to adopt a market-based 
program that would solve the problem.
    Senator Voinovich. I am going to be anxious to read that 
report. I will be interested to see what the reaction is to it.
    One last comment, and that is, Mr. Tyndall, you are 
involved in the issue I talked to Mr. Perciasepe about, and 
that was the NOx standards, the call that they have put out in 
terms of reducing 85 percent of your emissions. Do you want to 
comment on that in terms of your moving forward with trying to 
be a responsible corporate citizen and cleaning up the air, and 
dealing with some of the problems they have particularly in 
Pennsylvania and a little bit in the other Eastern States?
    Mr. Tyndall. There are several things to say about it. One 
is I would second what you observed earlier, that there was a 
real attempt to put something substantial on the table by 
Midwest and Southern States that was well within the range of 
reductions that the OTAG, the technical group, said was 
necessary. That was essentially rejected, nor were there even 
any attempts to try and see if there could be an accommodation 
between the views of the Northeast and the views of the Midwest 
and the South. We still continue with the war going on between 
the two regions, which I don't think is productive for anybody 
and I don't think it is productive for cleaning the air.
    Of course, that leaves us trying to guess at what our 
responsibilities are going to be. The State of Ohio, first 
under your leadership and under your successor's leadership, is 
moving ahead on putting the kinds of reductions on the table 
that they said they would. I think the modelling that the State 
of Ohio has, the modelling the State of Indiana has shows that 
level of reductions, the level represented by a 0.25 reduction, 
should resolve issues. But there is also continued working and 
trying to find a compromise that is acceptable, and the State 
of Ohio has been very active on that.
    The other part of it, however, is that we have NOx that is 
in front of us right now, but there are any number of issues, 
including the issue being raised today, where what we do on NOx 
could be totally inconsistent with what another part of EPA is 
pushing us to do. Yet, under the statute, under the way the Act 
is being implemented, there is no attempt to try and coordinate 
these or look at these. So we are going to make investment 
decisions and, if we make investment decisions that make it 
difficult for us to move to annual emissions, we will certainly 
bring that out.
    We have tried to talk to the Agency about this, we have 
said to the Agency why don't you try and coordinate all these 
things. And while they won't directly say this because it is 
their view they don't want to reopen the Clean Air Act, the 
truth of the matter is they can't. There are independent 
statutory provisions that drive forward requirements that give 
us that long list and that have reduction programs or reduction 
targets under consideration that are inconsistent, that have 
more or less flexibility, that are unit by unit, that are 
system, all sorts of different mixes and matches that makes it 
difficult for Cinergy to set a course and say over the next 10 
years here is what we will do for NOx, here is what we will do 
for SO2, here is--there are other issues on the 
table. It makes time to draw that roadmap impossible.
    And so I do think there is a better way of doing it. I do 
think, however, that it is going to lay the problem in the 
committee's collective lap, that it is not going to be done by 
the Agency or the Administration.
    Senator Voinovich. I would just like to comment that we are 
talking about responsible amendments to the Clean Air Act. The 
Chairman is going to be having hearings. We certainly would 
welcome recommendations from the environmental and from the 
business community and from State and local governments about 
how we can do a better job of utilizing our resources.
    I think what you are suggesting is that the left hand ought 
to know what the right hand is doing; that there ought to be 
some place where people come together and say these are the 
goals that we would like to set dealing with the Adirondacks, 
with this goal, with that goal, how do you put a plan together 
that you will commit to over a long period of time that says to 
you that if you make these investments, that next year someone 
won't come back and say I'm sorry, it is not enough and you 
have to go beyond, or I'm sorry, what you are doing is causing 
other problems and you are going to have to deal with that 
problem. It just is not the way to get things done. I don't 
think it helps the environment and I don't think it really 
helps our competitiveness in terms of our businesses in this 
country.
    Mr. Chairman, that is one of the other sides of this thing 
that nobody is concerned about, and that is that we are in an 
international marketplace. Our environmental policies not only 
have to do with the environment, but they also have to do with 
our competitive position in that global marketplace. We need to 
be darn careful about the investments to make sure that we are 
getting a return on those investments in terms of our air and 
water.
    Mr. Melewski. If I could, I would comment on Mr. Tyndall's 
point about the need for Congress to take a look at these 
programs, just from a slightly different perspective. He was 
concerned about the conflict between perhaps summer ozone 
controls and year round controls. The announcement that 
Governor Pataki is making today that New York is going to 
unilaterally do these severe reductions in SO2 and 
in NOx year round in New York gives New York clean hands, so to 
speak, and will provide us some health benefits, but it is 
really just giving us some extra time in the Adirondacks and 
perhaps the Catskills before we lose those parks. New York 
cannot unilaterally solve its problem, and it certainly cannot 
unilaterally get consensus to do year round controls. The 
change in the SO2 program and the possibility of 
year round controls in NOx will have to come back here.
    Senator Voinovich. Well, I want to say that I congratulate 
Governor Pataki, and I say finally, because Governor Pataki and 
I have had differences of opinion on this issue for a long 
time. I have said to him ``You're asking us to solve your 
problem. What are you doing in your State to be a good 
citizen.'' And I think this is a positive step on his part. And 
you're right, I think it puts him in a much better position in 
terms of when he is at the table with some of us who have said 
it's your problem and not ours, and have said you're not doing 
anything in your own State. I will be anxious to read about 
what he is doing and how it is going to be worked out. Thank 
you.
    Senator Inhofe. Thank you, Senator Voinovich.
    I think almost everything I was going to ask has been 
discussed. I would think though, Mr. Tyndall, and I don't mean 
to make this sound unkind or unfair to the Administration, but 
I have often said that one of the things a lot of them have in 
common is they have never had a job in the real world and, 
consequently, have an insensitivity to the impositions that are 
imposed on people. I say that because I am somewhat prejudiced 
since I spent 35 years on your side of the table instead of on 
this side.
    When you have these changes that take place and you are 
expected to reach certain levels and then next year they change 
and they change the rules, there is a tremendous cost in 
corporate planning to prepare for these things. We have talked 
around this, but it would be interesting to try to quantify 
these costs. Let us say we made a decision today that would 
take care of the next 5 years as opposed to doing it today and 
then coming back next year, it would be a very difficult thing 
to do but it would be helpful to us to know, as Senator 
Voinovich brought out, there is a global component to this, 
what the cost is compared to doing the same thing in another 
country.
    Mr. Tyndall. I think it is possible to get some idea of the 
cost-savings involved both in coordinating and in making sure 
that things are done with adequate lead times and with 
flexibility. I know internally that we looked at the NOx SIP 
call, the 0.15 pound per million BTU, and our own economic 
forecasters, the same people we use to predict the price of 
electricity, so the people we rely on for financial decisions 
looked at this and they basically noted that you take the same 
requirement, instead of having this mad rush to comply over, 
from our point of view, essentially seven seasons of when we 
can have outages to install the controls, instead of having 
this mad rush to comply, if you allowed a phase-in, if you 
allowed the accumulation of early reduction credits, the same 
sorts of things that are used in the SO2 program, 
you could end up at the same point for half the amount of 
expenditures.
    When I joined Cinergy they brought me the budget for trying 
to comply with the 0.15 and it was, and this is a number we 
have made public so I can say it, it was over $700 million, 
which was, by the way, twice what EPA estimated our compliance 
would cost. And I did say, because I know from being outside 
that industry tends to exaggerate these costs, right, so what 
is the real number. But, no, this is what the engineers and the 
consultants and everyone who is putting this together said. 
There's the construction crews, the cranes, the sheet metal 
workers, and all the stuff that goes into putting in place the 
huge number of controls required under EPA SIPP call. We were 
doing projects at every single plant. When we looked at that, 
we ended up at a number double what EPA said we were going to 
do.
    And I, of course, am friends with the person who does a lot 
of the EPA modelling, and I called him up and said ``Our 
numbers are double, we have the double the SCR you are 
predicting.'' And he said, ``Well, you are clearly wrong.'' And 
I said, ``Well, this is our business. We are writing 
contracts.'' Their refusal to say--we have programmed that 
those are the numbers, sorry. In fact, for the NOx SIPP call it 
is a very different price than the SO2 system 
because they did not build in the flexibilities that they built 
into the SO2 compliance.
    Senator Inhofe. I think you have answered that question.
    Mr. Melewski, I think during the debate in 1990, you 
originally did not support the acid rain trading system and now 
you do; is that accurate?
    Mr. Melewski. I think we were very skeptical about the 
trading system at that time. We certainly preferred an overall 
mandatory reduction. And some of our concerns have been borne 
out. We were very concerned about target level. Those have been 
borne out, that's why we are here today. But we were also 
concerned about the compliance record and whether trading would 
allow concentration of allowances in certain regions and how 
that would play out. And we have looked at alternatives to that 
system, at the time a regional trading system, regional 
controls. But it is quite clear now that the system is working 
very effectively. The kinks have been ironed out over the last 
few years.
    Senator Inhofe. In your opening statement, I think at the 
very last you even suggested expanding that the pollutant of 
NOx. There are problems here. Around the country, the cost of a 
ton of NOx reduction varies so widely from one part to another 
part, same as the benefits. That would be very difficult to 
address, but I am sure you have thought that through. Do you 
have any comments about that?
    Mr. Melewski. I think that the mechanism that is in place 
for the SO2 allowances provides that kind of 
flexibility. You can buy allowances, you can install controls, 
you can tailor make your own strategy to come into compliance. 
The reason we are advocating for a national cap and trade 
program for nitrogen is also the economic benefits. The areas 
outside those 22 States are going to see benefits from the 
reductions in nitrogen, and in a bigger market costs will go 
down.
    Senator Inhofe. Any reaction to that or comments?
    Mr. Tyndall. We do agree that if you have a broader market 
and more participants, and if you have a control level that 
allows over control, which, again, is a problem with the NOx 
level, that you then will have an active market and it will 
allow the market to even out control costs. But you have to 
have a system that allows the development of that market, you 
have to have a control level that allows the generation of 
allowances, and all of those things, and not to pick on the NOx 
SIPP call, but all of those things were reasons why we had 
serious concerns about whether the NOx allowance market would 
have functioned the way EPA wanted it to function. It doesn't 
mean that one can't be designed that would provide the same 
equalization of compliance costs as occurs with SO2.
    Senator Inhofe. All right. First of all, let me thank all 
of you, and not just this panel but previous panels, for being 
in attendance today. This is very significant to have this as 
the first hearing. We appreciate your time very much.
    Is there any last comment that you are just dying to say 
that you didn't get an opportunity to say, Mr. Benoit, Mr. 
Tyndall, or Mr. Melewski?
    Mr. Melewski. Well, I will take a shot at that. I think 
that Governor Pataki's actions today reflect the knowledge of 
the mercury contamination in New York, the stories of lead 
poisoning as a result of acid rain that are contained in our 
documents, that New Yorkers are extremely concerned about this 
issue. I think we all should be concerned about the prospective 
loss of one of our greatest parks. While I respect the need for 
due diligence and deliberate speed in Congress, I think that 
prompt attention to Title IV would be appropriate, and the 
sooner the better.
    Senator Inhofe. All right.
    Mr. Tyndall?
    Mr. Tyndall. I would just add one thing. Having worked for 
4 years with someone who I think still swears that he will 
never stand for the Clean Air Act to be reauthorized, my former 
boss, Mr. Dingell, I think it may be that one thing the 
committee should consider is whether it makes sense to take 
some issues that everyone knows need to be addressed and 
address them in a more individual series of bills, such as you 
did with your amendment to the transportation bill, in which we 
accomplish something but with not trying to take on every issue 
in the Clean Air Act. I think trying to move individual bills 
as opposed to putting them all together in an omnibus Clean Air 
Act reauthorization, no one is going to have a personal life 
for a year, bill is maybe a better approach. I don't want to be 
a Monday morning quarterback, because you have excellent staff, 
but just some advice.
    [Laughter.]
    Senator Inhofe. All right.
    Mr. Benoit?
    Mr. Benoit. If I could make one final point, Mr. Chairman. 
We heard a fair amount today about the importance of cost and 
benefits, risk reduction, the use of sound science. And I was 
struck by Mr. Perciasepe's remarks about the ability of U.S. 
industry to innovate in response to statutory, and regulatory 
objectives. I would like to point out that I think a fine 
example of industry innovating is the ability of existing 
industries to use waste materials, put them to work to reduce 
the use of fossil fuels, reduce the use of virgin materials, 
and in almost all instances doing that in a way that reduces 
emissions and reduces pollution. I truly hope that the Clean 
Air Act can be tailored to specifically accommodate and 
encourage that type of activity.
    Senator Inhofe. Sometimes a compliment on the innovation 
and the abilities of industry to respond is another way of 
saying we are going to make the decisions, you figure out how 
to make them work.
    [Laughter.]
    Senator Inhofe. Thank you very much. I appreciate all of 
you being here.
    The hearing is adjourned.
    [Whereupon, at 11:37 a.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [Additional statements submitted for the record follow:]
 Statement of Hon. Craig Thomas, U.S. Senator from the State of Wyoming
    Thank you, Mr. Chairman, for holding this hearing today to lay the 
groundwork for eventual reauthorization of the Clean Air Act. This 
issue is of great importance to the entire nation, but particularly to 
the West and my State of Wyoming where we have some of the nation's 
cleanest air and world class reserves of coal and natural gas, as well 
as wind resources. I am especially interested in the issue of cost/
benefit analysis and look forward to the discussion in today's hearing. 
Far too often, environmental regulations adversely impact the economy 
while offering minimal environmental benefits. We must move carefully 
and thoughtfully as we think about reopening the Clean Air Act.
    Since enactmentment of the 1990 Clean Air Act amendments, the 
Clinton Administration has tried various ways to implement even 
stricter standards. I, along with many others including State and local 
governments, and many of the nation's Governors--vocalized our 
opposition to the EPA's rule on Particulate Matter (PM) and Ozone. One 
of the most troubling aspects of the process is EPA's rush to implement 
standards without sound scientific data. In May, the U.S. Court of 
Appeals for the DC Circuit held that EPA had overstepped its authority 
in proposing the revision of the ozone standard. Yet despite this 
action, EPA continues to move forward with a new NOx regulation.
    It is paramount that principles of sound science be applied. I 
remember clearly the debate we had several years ago over EPA's rule 
for Particulate Matter and Ozone. Here in this committee, Dr. George 
Wolff, the Chairman of EPAs's Clean Air Scientific Advisory Committee 
at that time, stated that the court ordered deadline did not allow 
enough time for its members to adequately examine that complex issue. 
Ultimately, there was no scientific consensus. And despite the 
ambiguity and lack of scientific data which was documented by the 
experts who testified, EPA went on to set new standards for PM and 
ozone--an action based on a judgment call rather than sound scientific 
evidence. We need to be careful about going down any regulatory road 
before we have good science to support any measure.
    My point Mr. Chairman, is this: what we are seeing from this 
Administration is one extreme proposition after another. American 
businesses and industries have made great strides to improve air 
quality. America's air is much cleaner than it was 25 years ago. 
Nevertheless, the EPA continues to add layer upon layer of regulatory 
requirements on the backs of States and industry. It's critical that we 
keep the issues of cost benefit analysis and sound science in the 
forefront as we begin the discussions to reauthorize the Clean Air Act.
    Thank you and I look forward to hearing from our distinguished 
panel of witnesses.
                               __________
Statement of Hon. Daniel Patrick Moynihan, U.S. Senator from the State 
                              of New York
    Good morning, Mr. Chairman. Thank you for holding this hearing on 
the reauthorization of the Clean Air Act. It is clear that the Clean 
Air Act and the 1990 amendments to the bill have resulted in a 
significant improvement in air quality, and a better understanding of 
the science of monitoring, measuring and controlling air pollution. The 
regulatory flexibility of a ``cap and trade'' program, exemplified by 
the S02 Allowance Program, has been successful because of the 
flexibility it allows affected utilities. It promotes innovation and 
competition in emissions reduction technologies and has produced 
tremendous cost savings. Since 1990, studies have estimated that the 
cost savings due to emissions trading, compared to the traditional 
command-and-control approach, have been between $230 million and $600 
million per year. These successes are encouraging but our work is not 
yet done.
    I testified before this committee last year about the pioneering 
scientists at Cornell University, Carl Schofield, Eugene Likens, and 
Charles Driscoll who were among the scientists responsible for 
establishing a strong link between acid deposition--primarily caused by 
upwind utilities--and the diminished ability of lakes to sustain 
healthy fish populations. We have made tremendous progress in 
understanding the causes and effects of acid deposition and ways to 
control it, but we still have a long way to go to mitigate these 
problems. We have learned, for instance, that the S02 emissions 
reductions required under the Clean Air Act Amendments of 1990 are 
insufficient to prevent the continued acidification of many lakes and 
further damage to sensitive ecosystems.
    Perhaps most importantly, since the 1990 Amendments were enacted, 
we have learned that nitrogen oxides, which were largely ignored 8 
years ago, play a significant roll in acid deposition. And we have 
learned that acid deposition does not cause environmental degradation 
just in remote, high-elevation forests and lakes in the Adirondacks and 
northern New England. Rather, it poses a continuing and significant 
threat to the environmental quality of lakes, streams, forests, bays, 
and estuaries throughout the country. The Southern Appalachians, the 
Front Range of Colorado, and the San Bernardino Mountains in California 
are greatly affected by acidification and nitrogen saturation. 
Eutrophication is adversely affecting coastal waters throughout the 
eastern seaboard, including the Chesapeake Bay, Long Island Sound, and 
the Gulf of Mexico.
    Achieving cleaner air has a twofold solution: identify and control 
both mobile and stationary sources of pollution. The transportation 
sector accounts for nearly half of national NOx emissions. A large 
portion of these emissions are in the form of tailpipe exhaust from our 
national vehicle fleet. In recent years, advances in vehicle technology 
have produced Low Emission Vehicles (LEVs)--vehicles designed to reduce 
vehicle emissions by 90 percent. These vehicles were first sold in New 
York beginning with the 1998 model year. Unfortunately, New York can 
not see the full air quality benefits of these vehicles because New 
Yorkers do not have access to the low sulfur gasoline these vehicles 
have been designed to use. The problem is not limited to LEVs, although 
these vehicles are especially sensitive to gasoline sulfur. All 
vehicles in the national fleet with catalytic converters--virtually all 
vehicles--produce higher levels of emissions because of the high levels 
of sulfur in the gasoline they burn. Once the catalytic converter is 
damaged, it permanently loses its ability to filter pollutants.
    In conclusion, I want to say that the success of the 1990 Clean Air 
Act Amendments cannot be questioned. The S02 Allowance Program 
established by that legislation has achieved extraordinary benefits at 
program compliance costs less than half of initial projections. The 
efficacy of the approach is proven. The current science indicates, 
however, that we did not go far enough in 1990 in setting our emissions 
reduction targets. We must buildupon our accomplishments thus far, and 
to begin the work which remains to be done. Thank you.
                               __________
  Statement of Hon. Bob Graham, U.S. Senator from the State of Florida
    Thank you Mr. Chairman, for the opportunity to speak at this 
important hearing. I want to thank all of the distinguished witnesses 
who are here to testify today.
    The Clean Air Act has been a resounding success. A recent 
Congressional Research Service report notes that `` the Clean Air Act 
and its 1990 amendments appear to have contributed to a marked 
improvement in air quality nationwide.'' Since passage of the 1990 
amendments, more than one-half of the areas not meeting air quality 
standards for ozone in 1990 now meet those standards. 33 of 42 areas 
not in attainment for carbon monoxide in 1990 now meet the standard.
    At the present time, my State can boast attainment of all national 
ambient air quality standards. Unfortunately, this status will change 
with the new millennium. As we enter a new century and a new 
millennium, beautiful Tampa Bay and Pensacola, with its sugar-white 
sand beaches, will both be redesignated as non-attainment areas for 
ozone.
    I asked the Florida Department of Environmental Quality the 
following question: What measures would provide the most improvement in 
air quality for Florida? The answer was 1) the Tier II automobile 
emissions standards, including the low sulfur standard, and 2) phasing 
out the so-called ``grandfathered facilities.'' These facilities are 
the older fossil-fuel fired power plants that were not required to meet 
the New Source Performance Standards (NSPS) in the Clean Air Act.
    I would like to briefly discuss both of these measures, and get 
feedback from today's witnesses, especially as they pertain to Florida. 
As we are all aware, sulfur in gasoline interferes with the performance 
of cars' emission control equipment. Some have advocated regional 
standards for sulfur, based on regional air quality. I disagree. 
Florida attracts 45 million tourists per year to our beautiful shores 
and attractions. Many of these vacationers bring their cars. As you 
drive down I-95 or I-75 in Florida, you can spot license plates from 
just about every State. These cars travel through and across many 
regions to reach our shores and attractions. Differing regional sulfur 
standards would significantly reduce the efficacy of the emissions 
control equipment.
    In those regions of Florida that will be in non-attainment in 2000, 
specifically Pensacola and Tampa Bay, power plant emissions are the 
major contributing factor. When the Clean Air Act was crafted, older 
power plants were not required to meet the new source performance 
standards because it was thought that the remaining lifetime of the 
plants would be short. Requiring costly upgrades to plants that would 
not have time to amortize these capital expenses seemed unfair. As it 
turned out, most of these older plants continue to operate today, 
emitting far more than their fair share of pollutants. In a 
restructured electricity market, it has been estimated that allowing 
these older plants to continue to operate without complying to the new 
source performance standards amounts to approximately a 2 cents/kWh 
subsidy.
    I am very interested in examining steps that could be taken to 
bring these older plants into compliance with the new source 
performance standards in a way that is fair to all involved. These 
steps would provide a significant benefit of the environment as well as 
a way to level the playing field in electricity competition. Thank you.
                               __________
    Statement of Hon. Barbara Boxer, U.S. Senator from the State of 
                               California
    Good morning, Mr. Chairman. Thank you for holding this hearing 
today to consider the progress we have made toward bringing Americans 
cleaner, healthier air under the Clean Air Act.
    I believe that the considerable progress we have made toward 
achieving cleaner air is owed in large measure to one basic principle 
embodied in that law. That principle is that when it comes to setting 
the standards designed to protect the air our children breathe, we 
should consider only how to best protect public health.
    What kind of progress have we made under the law since it was 
amended in 1990?
    Since that time, we have reduced ground-level ozone, particulate 
matter and carbon monoxide pollution, we have reduced the levels of 
acid rain producing sulfur emissions, we have reduced the levels of 
stratospheric ozone depleting chemicals, and we have reduced the amount 
of toxics in our air.
    In California, we have also made great progress on these fronts--
reducing the levels of soot and smog that lead to health problems 
ranging from asthma to decreased lung function.
    Between 1980 and 1997, for example, statewide ozone levels have 
decreased 49 percent. Statewide levels of particulate matter (PM10) 
have decreased 31 percent between 1987 and 1997. At the same time, 
California's population and motor vehicle miles traveled increased 16 
and 26 percent, respectively.
    It is well worth noting that the advances brought by the Clean Air 
Act have been achieved at much lower costs than predicted by critics of 
the law. For example, a study prepared by critics in 1989 predicted 
that the acid rain program would cost between $4.1 billion and $7.4 
billion. Other industry estimates were much higher. The General 
Accounting Office's most recent cost estimate for this program is 
approximately $2 billion; independent economists place the cost at only 
$1 billion.
    Another industry study prepared in 1993 predicted that the law's 
reformulated gasoline program would add 16 cents to the price of each 
gallon of reformulated gas made. Actual costs of the program, however, 
are today estimated at between 3 to 5 cents per gallon.
    While these and other doomsday cost predictions have not been borne 
out by experience, we have witnessed the law spur the development of 
new, innovative technologies.
    Since the early 1970 amendments to the law, vehicle emission 
control technologies have been developed that reduce emissions from 
cars by 99 percent. Control technologies for stationary sources have 
also been revolutionized. For example, Selective Catalytic Reduction 
technology can reduce the emissions of nitrogen oxides from utilities, 
refineries, and manufacturing by up to 90 percent.
    Would we have seen these technological advances without a tough law 
on the books? I don't think so.
    But much more remains to be done.
    California still suffers from some of the most serious air quality 
problems in the nation. Approximately 30 million Californian's live in 
counties that don't meet the law's health-based air standards.
    Although air quality in the Los Angeles area has shown improvement 
for the first time this year, it still has among the worst air quality 
in the nation. We know that the smog and soot that plagues the L.A. 
area may have serious health consequences for the approximately 15 
million people that live there.
    A recent study, for example, found that air pollution in that 
region may impair children's long-term breathing capacity, leaving them 
vulnerable to respiratory disease and underdeveloped lungs. Asthma, 
which is exacerbated by air pollution, is also on the rise.
    In 1997, EPA finalized rules that would have helped us reduce those 
health risks. Unfortunately, those new rules were thrown into doubt by 
a May 14, 1999 Federal appeals court ruling. In the case, the court 
resurrected a discredited 1950's legal doctrine to call those rules 
into question. Even very conservative legal scholars find the court's 
ruling puzzling.
    So, while EPA and the Department of Justice appeal that ruling, the 
cleaner air that American's deserve is on hold.
    The ruling, however, offers this committee guidance in what it did 
not find.
    The court did not find that EPA relied upon bad science in 
establishing those new clean air rules. The court did not find that EPA 
acted beyond its authority in excluding a consideration of costs in 
setting those new standards.
    The last thing we need to do in this committee is to buy into the 
argument that the science used by the EPA in its air program is flawed, 
or that costs should be considered in setting our air standards.
    I look forward to hearing the testimony of the witnesses here 
today.
    Thank you, Mr. Chairman.
                               __________
                 Office of the Governor, State of New York,
                                                   October 27, 1999

Hon. James Inhofe, Chairman,
Subcommittee on Clean Air, Wetlands, Private Property, and Nuclear 
        Safety,
United States Senate,
Washington, DC 20510

Dear Chairman Inhofe: Thank you for providing me with the opportunity 
to submit to you my testimony on New York State's important new acid 
rain reduction initiative. I believe this innovative proposal not only 
demonstrates my strong commitment to protecting the quality of New 
York's air resources, but also provides the U.S. Congress and other 
States with compelling documentation of the need for and application of 
stringent reductions in air pollutants with respect to costs and 
environmental and public health benefits.
    The reductions that will be made to New York State's electric 
generation facilities will have real and perceivable benefits upon the 
areas of the State that are most sensitive to acid rain Moreover, the 
actions we have repeatedly requested, and will continue to request from 
other States, are no greater than the demands that we place upon our 
own facilities.
    I urge you to give the enclosed comments careful consideration as 
you review the Clean Air Act and consider amendments to it. In 
particular, T urge your strong support for S. 172, Senator Moynihan's 
insightful legislation, which if enacted, would greatly assist the 
environmental quality of New York State and many other areas of our 
Nation that are sensitive to acid rain. This bipartisan legislation has 
also been introduced in the House of Representatives by New York 
Representatives Boehlert and Sweeney.
    Thank you for your consideration of our initiative. I look forward 
to discussions with you and your colleagues as you debate the future of 
the Clean Air Act.
            Very truly yours,
                                             George Pataki,
                                                Governor, New York.
                               __________
        Statement of Hon. George E. Pataki, Governor of New York
    Mr. Chairman, I want to thank you and the other members of the 
Senate Environment and Public Works Subcommittee on Clean Air, 
Wetlands, Private Property and Nuclear Safety, for providing me with 
this opportunity to share with you the details of an historic 
initiative by the State of New York, one which I believe will further 
demonstrate our commitment in the fight to protect and preserve New 
York's water bodies, natural resources, and citizens from the 
devastation of acid rain and smog.
    New Yorkers care deeply about the quality of their environment. As 
the Governor of New York State, my Administration consistently has 
recognized and responded to this high priority of our citizens. I have 
repeatedly taken actions to preserve, protect and improve the quality 
of the State's environment and natural resource base for now and 
generations to come.
    These actions have taken form, through full funding for the State's 
Environmental Protection Fund, and through the approval by the voters 
of New York State of the $1.75 billion Clean Water/Clean Air Bond Act 
of 1996. We are preserving the quality of drinking water for nine 
million New Yorkers, thanks to an historic 1997 agreement to protect 
New York City's Watershed. We have developed, and are implementing, 
management plans for critical water bodies throughout New York State, 
including Lake Champlain, Onondaga Lake, Long Island Sound and the 
Hudson River. And we have preserved over 250,000 acres of open space--
the shoreline of Lake Erie; the Whitney and Champion properties in the 
Adirondack Park; Sterling Forest in Hudson Valley; the Albany Pine 
Bush; Mount Loretto in New York City; and the fragile Pine Barrens of 
Long Island.
    Under my direction, we also are meeting State recycling goals, 
closing the Fresh Kills Landfill, and cleaning up brownfields which 
would otherwise remain as abandoned and unusable. But some of my 
greatest concerns continue to be over the need to improve air quality 
for all New Yorkers.
    On October 14, 1999, I announced a significant new clean air 
initiative that will have important environmental and public health 
benefits, and that will reaffirm New York's leadership in the fight 
against air pollution. This announcement complements the many efforts 
which New York State has taken to demonstrate our national leadership 
in the fight for reductions in the emissions of air pollutants that 
cause acid rain and ozone (also known as smog) both inside and outside 
of our borders.
    Let me briefly explain to you the history of the acid rain issue, 
as it impacts New York State, and why this recent Clean Air initiative 
is so important to us.
    The State of New York created the Adirondack Park, and the people 
of the State invested it with special, ``forever wild'' constitutional 
protections, more than a century ago. Measuring about six million 
acres--about equal to the size of the State of Vermont--it is the 
largest park of its kind in the United States, covering one fifth of 
the land area of the State and containing the largest assemblage of Old 
Growth forest east of the Mississippi. It is a glorious, perpetual and 
pristine wilderness.
    During the early 1980's, there were projections and evidence of 
widespread destruction of lakes in the Adirondack area as a result of 
acid precipitation. Although the New York State Department of 
Environmental Conservation (NYSDEC) had been gathering data since 1977 
on lakes believed to be sensitive to acidification, a review of the 
chemistry and biology of these waters presented an incomplete picture 
of past and existing conditions. As a result, it was apparent that a 
more standardized, detailed and comprehensive survey was needed to 
determine the extent and magnitude of acidification of waters in New 
York State. In order to gather the information that would serve as a 
baseline for evaluating future environmental changes, and to provide a 
basis for decisions relating to reductions in pollutants, the 
Adirondack Lakes Survey Corporation (ALSC), a not-for-profit 
corporation, was formed.
    From 1984 to 1987, field investigators focused on the collection of 
detailed chemical, physical and biological data from 1,469 Adirondack 
lakes and ponds. These data showed that 352 water bodies had pH values 
of 5.0 or less, and fish were not captured in 346 of the waters 
surveyed. Fishless waters were characterized as having low pH, limited 
ability to neutralize acid, low calcium concentrations, and high 
aluminum values.
    Since 1984, nearly $13 million in research projects have been 
completed or are ongoing under the auspices of the ALSC. The ALSC 
continues to be a cornerstone for cooperative scientific investigation 
with the U.S. Environmental Protection Agency (EPA), universities, 
NYSDEC, the Adirondack Park Agency, and other State and local 
organizations. Its careful studies have documented the continuing loss 
of Adirondack lakes to acid rain, and the need to address this problem 
at its source--the facilities where the emissions occur.
    The many studies of the ALSC have demonstrated their worth. In 
1990, when Congress approved the Clean Air Act Amendments (CAAA), the 
documentation that we provided to Senator Moynihan and others who were 
instrumental in the development of this legislation, provided the 
justification to statutorily protect the Adirondacks, the Hudson 
Highlands, Long Island Sound and other sensitive receptor areas--
regions which are sensitive to acid rain--through Title IV of the 1990 
Act.
    Through this Congressional action, an innovative ``cap and trade'' 
program was created as a free market based approach to reduce the 
emissions of acid rain precursors. This program provided utilities with 
the flexibility to make compliance strategies part of their long-term 
business planning.
    After court challenges and many debates, this program is now at 
work, making cost-effective air pollution controls a reality.
    In crafting the CAAA of 1990, Congress also wisely called for 
studies to demonstrate the effectiveness of Title IV on protecting 
sensitive receptor areas. These recently published reports, EPA's 
Report to Congress, the Acid Deposition Standard Feasibility Study 
(1999) and the National Acid Deposition Precipitation Assessment 
Program's (NAPAP) Biennial Report to Congress An Integrated Assessment 
(1998), came to the unfortunate conclusion that the current and future 
emission reductions required by the CAAA are insufficient to protect 
sensitive water bodies in the Adirondacks from acidic deposition, or 
acid rain.
    By U.S. EPA's own admission, the CAAA have been unable to 
satisfactorily resolve New York's great concerns with acid deposition. 
Given the growing body of evidence--resulting from the studies required 
by this Act--that the impacts of acid rain on New York's sensitive 
receptor areas become more devastating every day, I decided to take 
strong actions, ones that go well beyond the air pollution restrictions 
already imposed on New York State by the Clean Air Act.
    The studies that I mentioned earlier--EPA's Report to Congress and 
the NAPAP study--provide all the evidence necessary for the Federal 
Government to act aggressively to curb the emissions of these 
pollutants far more than had been envisioned by previous regulatory 
actions. I am dismayed at the Federal inertia which, even with this 
tremendous documentation that our lakes are dead or dying at an 
alarmingly fast rate, continues to allow us to be ravaged by these 
pollutants.
    Chairman Inhofe, I believe you share my philosophy that Federal 
intervention in the activities of the States should be limited to only 
those areas where the States, on their own, cannot fully address a 
specific issue. The interstate transport of air pollutants is one of 
those issues where the Federal Government must be a partner with the 
States to reduce pollution and to establish a level playing field.
    The evidence of the reports required by the CAAA show as well that 
some electric generation facilities in New York State are responsible 
for a portion of the air pollution which damages our lakes, ecosystems, 
buildings, and public health. Although the pollutants emitted by New 
York utilities are limited--only about 20 percent of the total harmful 
emissions of air pollutants that result in acid rain in New York 
State--I was determined to act upon this information.
    Since Federal action to significantly decrease air pollution in all 
the States which have facilities responsible for interstate transport 
has not been forthcoming, here in New York we will take the lead. That 
is why I have directed NYSDEC Commissioner Cahill to promulgate 
regulations that will require fossil-fueled electric generators in New 
York to further reduce their acid rain-causing emissions. In doing so, 
I am requiring utilities in New York State to reduce sulfur dioxide 
emissions an additional 50 percent below Federal CAAA standards, and to 
extend summertime nitrogen oxide controls to year round controls.
    My proposal is a regulatory initiative. It will reduce airborne 
emissions that result in acid rain from New York's electric generators. 
It will require reductions in emissions of sulfur dioxide by 50 percent 
beyond what will be required by Phase II of Title IV of the Federal 
CAAA. These additional reductions will be phased in between 2003 and 
2007.
    Furthermore, in addition to the tremendous natural and structural 
losses from acid rain, millions of our residents are harmed by levels 
of ozone--smog--that impair human health. There are too many summer 
days when we have to warn our most sensitive residents--the young, the 
elderly, the infirm--that they shouldn't go outside and breathe the 
air, or that they should limit their activities. Our asthma rates, to 
which ozone contributes, are among the highest in the nation. Clearly 
this situation is unacceptable. For this reason, New York already has 
agreed to reduce emissions of nitrogen oxides from electric generators 
to 0.15 pounds of nitrogen oxides per million BTU heat input during the 
summer months (May through September). New York's new proposal will 
require this emission rate to be achieved year round.
    We envision allowing statewide emissions averaging, which will 
encourage regulated entities to trade among themselves to achieve 
compliance. My proposal also will supplement the sulfur dioxide 
reduction program required by Federal law.
    The percentages of reductions described above will translate to 
additional sulfur dioxide reductions of 130,000 tons per year, while 
the additional nitrogen oxide reductions will total 20,000 tons per 
year.
    New York State will encourage and assist other States across the 
Nation to follow our lead on these innovative programs to generate 
additional reductions. I expect that other States will begin to follow 
New York's example very soon.
    The annualization of the nitrogen oxide emissions rate will begin 
in 2003. Reductions in sulfur dioxide will begin in 2003 and will be 
fully implemented by January 1, 2007. Regulations must be drafted and 
promulgated for both pollutants. This process, which will include full 
involvement by the public, is expected to take at least a year.
    In taking this unprecedented step, I am joined by environmental 
organizations across the State--including several national 
environmental groups--in sending a strong message to the Clinton 
Administration and other States: In New York, we will do all we can to 
clean up our air while we continue to fight for stronger clean air 
requirements on the national level. The League of Conservation Voters, 
the Natural Resources Defense Council, the National Audubon Society, 
the Adirondack Council, the Environmental Defense Fund, and Scenic 
Hudson all have endorsed this initiative.
    New York's citizens deserve no less.
    This is not the first time that New York's early initiative on acid 
rain has led the way for Federal action. In 1984, New York enacted the 
Acid Deposition Control Act, the first acid rain law in the country to 
require emission reductions. This State law identified both sulfur 
dioxide and nitrogen oxide as precursors to acid rain; sought limits on 
total emissions from utilities sited within the State; and proposed the 
innovative trading mechanism, mentioned earlier, which Congress would 
later adopt nationwide in the Clean Air Act Amendments of 1990.
    The initiative which I announced earlier this month is embodied in 
legislation which is before your Subcommittee for review. S. 172, 
introduced in the Senate by Senator Moynihan, and in the House of 
Representatives by Representatives Boehlert and Sweeney, is intelligent 
and effective legislation that would require national reductions in 
acid rain-causing emissions. The commitment made by New York State, 
which I describe above, will have the same effect in our State as the 
Moynihan-Boehlert-Sweeney bill would have on the Nation.
    I would like to point out that our entire New York Delegation is 
being joined by Members of Congress from other States in support for 
the Moynihan-Boehlert-Sweeney bill. As a result of the EPA and NAPAP 
studies, these other members of the Senate and House have recognized 
that the interstate transport of air pollutants damages the 
environmental quality and public health of their States as well. The 
tragedy that we already have seen in New York is simply the harbinger 
for other sensitive receptor areas across this Nation--such as 
Chesapeake Bay, Narrangansett Bay and Tampa Bay.
    Just as the citizens of New York deserve no less than the best 
possible protection from acid rain, through strict emissions limits, I 
believe that the citizens of our Nation deserve no less. Acid rain is 
not just a New York problem--it is a national problem which deserves a 
national solution.
    Experience in complying with the acid rain provisions of the CAAA 
has demonstrated that these reductions can be achieved far less 
expensively than previously thought. Modern control technology has 
dramatically reduced the cost of compliance. For instance, the drafters 
of the 1990 CAAA estimated that it would cost approximately $1,500 to 
reduce one ton of sulfur dioxide. Today, that cost is actually less 
than $200 a ton.
    Chairman Inhofe, I cannot emphasize to you enough the urgency of 
this proposal to New Yorkers. The sources and impacts of acid rain on 
New York's sensitive ecosystems have been well documented. Without 
serious action such as this initiative, on both the State and national 
level, we in New York realistically fear the loss of some of our most 
precious national resources. We hope, by implementing these dramatic 
reductions in sulfur dioxide and nitrogen oxide emissions, to 
demonstrate to the Administration and Congress the importance of 
approving the Moynihan-Boehlert-Sweeney legislation. Through our 
actions, we know that we have made New York the leader in the fight 
against acid rain and the devastation that it causes. We hope that we 
also are making New York an example of how cost effective and 
beneficial reductions in sulfur dioxide and nitrogen oxides can be.
                               __________
Statement of Robert Perciasepe, Assistant Administrator, Office of Air 
             and Radiation, Environmental Protection Agency
    Mr. Chairman and Members of the Subcommittee, I welcome the 
opportunity today to testify on our nation's progress under the Clean 
Air Act (the Act) toward achieving clean, healthy air for all 
Americans. My remarks reflect the perspective I have gained during my 
time at the U.S. Environmental Protection Agency (EPA), and also my 
experience as the Secretary of the Environment in Maryland, and as the 
first State chair of the Ozone Transport Commission.
    It is important to remember that the Clean Air Act Amendments of 
1990 (the 1990 Amendments) passed with overwhelming support in both the 
House and Senate and set ambitious air pollution reduction goals. This 
bipartisan legislation was designed to achieve real results--and it has 
done so. I am pleased to report that this nation has substantially cut 
air pollution over the past 9 years. We have made great strides in 
combating urban air pollution, toxic air pollution, depletion of the 
stratospheric ozone layer, and acid rain. But we still have a long way 
to reach our goal: clean air for every American.
    I will start today by describing the substantial progress we've 
made since 1990 in reducing air pollution. I will then reflect on what 
we've learned about effective and efficient ways to achieve our goals--
including the benefits of stakeholder involvement, market-based 
policies, flexible, common-sense implementation, and the value of 
publicly available information. We also have learned that many 
predictions of high costs and infeasibility have not come to pass. In 
fact, for many air pollution problems, reductions have been made faster 
and at less cost than we ever expected. Finally, I want to bring you up 
to date on some of our key current efforts and talk briefly about 
whether the Clean Air Act should be reopened at this time.
                       progress toward clean air
    To appreciate how far we have come in reducing air pollution, it is 
instructive to remember where we were before the 1990 amendments. There 
was growing concern about the increasing damage to the stratospheric 
ozone layer, which, among other things, protects us from skin cancer 
and cataracts. Acid rain essentially was unchecked, causing damage to 
aquatic life, forests, buildings and monuments, as well as visibility 
degradation and health risks from sulfate and nitrate particles. In 
1990, photochemical smog, which can impair lung function, cause chest 
pain and cough, and worsen respiratory diseases and asthma, exceeded 
healthy levels in 98 metropolitan areas. Many cities did not meet the 
national air quality standards for the pollutant carbon monoxide, which 
can aggravate angina (heart pain), and also for particulate matter, 
which is linked to premature death, aggravation of pre-existing 
respiratory ailments, and reductions in lung capacity. The millions of 
tons of hazardous air pollutants emitted annually in the United States 
were largely unregulated at the Federal level. Many of these pollutants 
have the potential to cause cancer or other serious health effects such 
as nervous system damage, miscarriages or birth defects.
    Since then, the 1990 Amendments enabled us to substantially reduce 
each of the major air pollution problems that faced the United States:

    Annual sulfur dioxide emissions, which react to form acid rain, 
have been cut by more than 5 million tons, and rainfall in the eastern 
United States is as much as 25 percent less acidic.
    Production of the most harmful ozone-depleting chemicals has ceased 
in the United States and--provided the United States and the world 
community maintain the commitment to planned protection efforts--the 
stratospheric ozone layer is projected to recover by the mid 21st 
century.
    Ground-level ozone pollution, particulate matter, and carbon 
monoxide pollution have all been reduced significantly, producing 
dramatic decreases since 1991 in the number of areas in nonattainment.
    Rules issued since 1990 are expected to reduce toxic emissions from 
industry by 1.5 million tons a year--eight times the reductions 
achieved in the previous 20 years.
    These results have been achieved through a combination of rules, 
voluntary measures, market mechanisms, State partnerships, and 
stakeholder negotiations. Between 1990 and 1997, we reduced annual 
emissions of all criteria pollutants by 10 million tons. By 2010, rules 
already in place will have reduced these annual emissions by more than 
30 million tons from the 1990 level.
                           reducing acid rain
    To combat acid rain, the 1990 Amendments called for a 10 million 
ton reduction in sulfur emissions, relative to a 1980 baseline. Much of 
that was to be achieved from utility power plants through an innovative 
market-based pollution allowance trading system. The results have been 
dramatic. So far, national sulfur dioxide emissions have been cut by 
more than 5 million tons, mostly through this program--and at lower 
cost than predicted. As a result, rainfall in the eastern United States 
is up to 25 percent less acidic, and some ecosystems in New England are 
showing signs of recovery. Separate requirements for nitrogen oxides 
controls for utilities already have begun reducing those emissions, and 
will achieve a 2-million ton NOx reduction beginning next year.
    Annual costs of the sulfur emissions program are now estimated to 
be less than half of what we projected in 1990 ($4 billion in 1990, $1 
to $2 billion now). Trading has allowed the utility industry to 
minimize compliance costs, and has spurred competition in other sectors 
of the economy such as freight, coal, and scrubbers--all of which has 
resulted in lower costs. The rest of the 10 million ton reduction in 
SO2 will be achieved by 2010 through the second phase of the 
acid rain program. Recent research indicates that further reductions in 
SO2 and NOx emissions beyond those required by the acid rain 
program would be necessary for full recovery of the most sensitive 
ecosystems. The controls to achieve such reductions also would provide 
significant health benefits by reducing fine particulates.
                protecting the stratospheric ozone layer
    The global phase-out of chlorofluorocarbons (CFCs) and other ozone-
depleting chemicals is an unparalleled triumph of the soundest science, 
economics, and diplomacy. It rests on an overwhelming consensus within 
the world science community. One hundred and sixty-eight nations have 
become parties to the Montreal Protocol, the treaty through which the 
phase-out policy is being implemented worldwide. The United States and 
the world have made significant progress to date in addressing the 
erosion of the earth's protective ozone layer by eliminating many 
manmade ozone-depleting chemicals. Production of the fire-extinguishing 
halons was virtually eliminated by the world's developed countries in 
1994 and at the beginning of 1996, developed country production of 
CFCs, methyl chloroform, and carbon tetrachloride ended, thus avoiding 
emissions of 400,000 metric tons of ozone-depleting substances. As a 
consequence of these prudent international actions, the rate of 
increase of atmospheric concentrations of ozone-depleting chemicals has 
slowed, and in some cases, declined. In 1998, more than 100 scientists 
worldwide collaborated in a scientific assessment of the state of the 
ozone layer. These scientists concluded that the Montreal Protocol is 
working. Reductions in concentrations of ozone-depleting compounds 
already have been measured in the atmosphere, and scientists predict 
the gradual recovery of the ozone layer by the mid-21st century.
    This unprecedented international success story also will contribute 
substantially to the health of all Americans. EPA estimated in 1992 
that the phase-out would reduce U.S. incidences of non-melanoma skin 
cancer by 295 million during the period 1989 through 2075, as well as 
protect people from eye damage leading to cataracts, and immune system 
suppression .
    The phase-out used a market trading approach developed by EPA that 
has served as a model for programs in other countries. Because of 
strong partnerships with industry and the flexible market approach, the 
phase-out was much less expensive than was predicted at the time the 
1990 Clean Air Act Amendments were passed. In 1988, EPA estimated that 
a 50 percent reduction of CFCs by 1998 would cost $3.55 per kilogram. 
In 1993 the cost for a 100 percent phase-out by 1996 was down to $2.45 
per kilogram.
                      healthier air in more cities
    The air in our nation's cities is substantially cleaner than in 
1990. Nationally, the 1997 average air quality levels were the best on 
record for all six common pollutants (lead, NO2, 
SO2, PM10, CO and ozone) subject to air quality 
standards. The 1998 levels were as good or better for all pollutants 
except ozone. These improvements have occurred along with growing 
population, strong economic growth and continued growth in vehicle 
miles traveled. From 1970 to 1997, U.S. Gross Domestic Product has 
grown by 114 percent, the U.S. population has grown by 31 percent, and 
the number of miles traveled by on-road vehicles (VMT) has increased by 
127 percent.
    Since 1993, an unprecedented number of cities have met the health-
based national ambient air quality standards. For example, of the 42 
carbon monoxide areas designated as nonattainment in 1991, only 6 areas 
continue to experience unhealthy levels of CO (based on 1996 -1998 
data). Much of the progress on CO can be attributed to the Clean Air 
Act's wintertime oxygenated fuels program, which began in 1992 in 30 
cities.
    Although we continue to experience unhealthy levels of ozone and 
particulate matter, we have made substantial progress even with those 
pollutants. The 1996 to 1998 data for particulates indicates that 71 of 
the original 85 nonattainment areas have air quality meeting the 
PM10 standard. Average particulate levels (PM10) 
dropped 25 percent from 1989 to 1998. Because we now believe that the 
finer particles pose the greatest health concern, we are working with 
States to get monitoring systems in place for fine particulate matter 
(PM2.5). In the case of ground-level ozone, based on 1996 to 
1998 data, 62 of the original 98 ozone nonattainment areas have air 
quality levels meeting the 1-hour ozone standard.
    For the other three criteria pollutants, few areas remain in 
nonattainment. The remaining lead and sulfur dioxide nonattainment 
areas in the country are the result of localized point sources for 
which action on an individual basis is being taken. The nitrogen 
dioxide standard is now met nationwide. The last nitrogen dioxide 
nonattainment area, Los Angeles, met the standard in 1992 (and was 
redesignated to attainment in 1998).
                      cleaner cars, cleaner fuels
    A key reason for the air quality improvements we are seeing is that 
the 1990 Amendments called for cleaner motor vehicles and cleaner 
fuels, in recognition of the important role that motor vehicle 
emissions play in affecting air quality.
    Today, the average new car (meeting Tier I standards in the 1990 
Amendments) is 40 percent cleaner than the average new car was in model 
year 1990. Cars now have onboard canisters to control refueling vapors, 
and onboard diagnostic computers to identify emission control problems.
    In 1997, EPA mediated an agreement among the States, U.S. auto 
companies, and other stakeholders that calls for automakers to produce 
cars 50 percent cleaner than today's Tier I cars, which began in eight 
Northeastern States in model year 1999. In addition to covering 
passenger cars, the agreement covers the majority of sport utility 
vehicles, minivans, and light-duty trucks, which have higher emissions 
than cars. Automakers voluntarily agreed to meet the tighter standards 
on an enforceable basis. The agreement benefits car companies by 
avoiding a potential patchwork of differing State emissions 
requirements. It benefits States and the public by delivering cleaner 
cars 5 years sooner than EPA could otherwise have required. These 
vehicles will be available nationwide in model year 2001.
    While requiring cleaner cars, the 1990 Amendments also required 
cleaner gasoline. To reduce smog-forming VOCs and toxics, the 1990 
Amendments required cleaner, reformulated gasoline in the worst ozone 
areas, and allowed additional areas to join the program. Today, 30 
percent of the country's gasoline consumption, in 18 States, consists 
of reformulated gasoline, or RFG. Overall, refiners have gone beyond 
the 15 percent reduction in VOCs and toxics required by the Act 
beginning in 1995. Refiners' data now tell us that VOC reductions are 8 
percent greater than required on average, and toxic reductions almost 
twice the required amount. In those RFG areas where we measured, levels 
of benzene in the air were down 43 percent from 1994 to 1995. This is 
exciting progress since benzene is a known human carcinogen that has 
been linked to leukemia. One of the attractive features of this program 
is that reductions of pollutants are immediate because cleaner fuels 
can be used in any car on the road today. Phase II of the RFG Program 
will begin in January 2000.
    Buses and trucks also are getting cleaner. Diesel-powered urban 
transit buses being built today release almost 90 percent fewer 
particulate emissions than buses built in 1990. As a result of EPA 
emissions standards for new buses, smoke-belching buses will disappear 
as old buses are retired from service. Emissions control will be 
required for older urban buses that have their engines replaced or 
rebuilt. Under rules issued in 1997, NOx emissions from heavy-duty 
diesel engines used in trucks and buses will be cut in half by 2004, 
assisting with efforts to reduce smog and particulates. In addition, 
substantial emissions reductions are being achieved for the first time 
through a set of standards for a variety of engines not used in highway 
vehicles--including locomotives, bulldozers, commercial and 
recreational marine vessels and lawn and garden equipment.
    In addition to the very substantial reductions in ozone precursors, 
all of the programs put in place since 1990 to control emissions from 
motor vehicles will reduce total vehicular air toxics emissions by 
approximately 40 percent.
                     cutting industrial air toxics
    Since 1992, EPA has issued 43 pollution standards affecting 70 
industrial categories such as chemical plants, dry cleaners, coke 
ovens, and petroleum refineries. When fully implemented, these 
standards will eliminate over 1.5 million tons of air toxics and over 
2.5 million tons of particulate matter and smog-causing volatile 
organic compounds.
    By contrast, in the preceding 20 years only seven hazardous air 
pollutant standards, eliminating 125,000 tons of toxics, had been put 
in place. One of the main reasons was that the toxics provisions of the 
1970 Act triggered contentious debates and litigation over risk 
assessments and ``how safe is safe.'' Congress resolved this in 1990 by 
directing EPA to issue technology- and performance-based standards on a 
source category basis to ensure that major sources of air toxics are 
well controlled. These standards create a level playing field by 
requiring all major sources, in essence, to achieve the level of 
control already being achieved by the better performing sources in each 
category.
    The result is that we are reducing the large quantities of toxic 
air pollutants released into our air, in the aggregate and around 
industrial sources in populated areas. We will achieve additional 
reductions as we complete standards for more categories of major 
pollution sources. We are now in the early stages of implementing the 
second phase of the air toxics program outlined by the 1990 Amendments, 
targeting particular problems such as elevated risks in urban areas, 
deposition of air toxics into the Great Lakes, mercury emissions, and 
residual risks from already controlled sources.
    improving visibility in our national parks and wilderness areas
    In July, EPA published a new rule calling for long-term protection 
of and improvement in visibility in 156 national parks and wilderness 
areas across the country. These areas include many of our best known 
and most treasured natural areas, such as the Grand Canyon, Yosemite, 
Yellowstone, Mount Rainier, Shenandoah, the Great Smokies, Acadia, and 
the Everglades. Regional haze, created by fine particles and other 
pollutants, degrades vistas in these parks and regionally across the 
nation. For example, on some days air pollution reduces visibility to 
less than 10 miles in our eastern parks.
    The regional haze program is designed to improve air quality in the 
parks, particularly on these poor visibility days. Because haze is a 
regional problem, EPA is encouraging States to work together in multi-
State planning organizations to develop potential regional strategies 
for the future. EPA will be working closely with these multi-State 
organizations, to provide guidance during this process, just as it did 
with the many States and Tribes involved in the Grand Canyon Visibility 
Transport Commission.
    During the period 2003-2008, States are required to establish goals 
for improving visibility in each of these 156 areas and adopt emission 
reduction strategies for the period extending to 2018. States have 
flexibility to set these goals based upon certain factors, but as part 
of the process, they must consider the rate of progress needed to reach 
natural visibility conditions in 60 years. To assist in evaluating 
regional strategies and tracking progress over time, we are working 
with the States and Federal land managers to expand our visibility and 
fine particle monitoring network to 110 of these areas over the next 
several months.
 what we've learned: innovative strategies and stakeholder involvement
    These impressive results have come about through involving 
stakeholders from the outset, using innovative and flexible 
environmental protection strategies, and adjusting when programs need 
improvement.
    Since 1990, the Agency has dramatically expanded its interaction 
with stakeholders. Consensus is not always attainable, of course. But 
the time and effort we put into communication and consensus-building 
pays off in better rules, and often in smoother implementation.
    One of the first examples of stakeholder involvement was the Acid 
Rain Advisory Committee, an intensive 7-month effort with stakeholders 
immediately after the 1990 Amendments that helped shape the rules for 
the successful acid rain program. This positive experience led to 
establishment of the Clean Air Act Advisory Committee, a standing group 
of several dozen experts from industry, the environmental community, 
States, academia and elsewhere. We seek the advisory committee's 
insights frequently.
    Two large stakeholder involvement efforts were the Ozone Transport 
Assessment Group (OTAG) process and the National Ambient Air quality 
Standards (NAAQS) implementation advisory committee process. OTAG, 
which involved 37 States, EPA, and many stakeholders, conducted state-
of-the-art modeling to improve understanding of the interstate ozone 
transport problem in the East, and laid the groundwork for our ongoing 
efforts to institute regional controls on NOx emissions. EPA supported 
OTAG, which was led by the Environmental Council of States, with 
significant technical and financial assistance. The NAAQS Federal 
Advisory Committee Act (FACA) process, convened by EPA, provided us 
with insights on ways to implement the 1997 ozone and PM NAAQS even 
before those standards were promulgated.
    Since 1990, we typically have involved stakeholders earlier in 
rulemaking efforts than we did before that time. In the case of air 
toxics standards, for example, we realized that working with 
stakeholders early in the process would be a necessity if we were to 
meet the Act's requirement to produce standards for the long list of 
industrial source categories. We developed a ``MACT partnering'' 
process that allows EPA, State and local air quality agencies to work 
cooperatively with industry and local organizations to collect 
information on emissions and controls, and to develop a draft 
determination of the level of control. Similarly, we have engaged 
stakeholders in substantive discussions prior to developing proposed 
mobile source rules--for example, in developing rules to control 
emissions from heavy-duty trucks and buses. The National Low Emission 
Vehicle Program is another example of what can be achieved through 
consensus building with stakeholders when incentives for agreement 
exist.
    Since 1990 we have emphasized using new approaches to achieve more 
environmental protection at less cost. We have made increasing use of 
market-based approaches to cut compliance costs, promote technology 
development and achieve extra environmental benefits. We also have 
looked for other ways to provide flexibility on the means of achieving 
emissions reductions, while ensuring accountability. We are making use 
of new information technologies to improve public information on air 
quality, and are providing compliance assistance to small businesses.
    Emissions averaging and trading are frequently used as standard 
tools of the air program. Beyond the stratospheric ozone and acid rain 
programs, we have provided trading opportunities in many national air 
rules for vehicle manufacturers and fuel refiners. The most recent 
example is the proposed Tier II/gasoline sulfur rule, which would allow 
averaging, banking and trading to provide additional flexibility to 
vehicle manufacturers and fuel providers. Emissions averaging is 
permitted by national air toxics emissions standards for refineries, 
chemical plants, aluminum production, wood furniture and other sectors 
that use coatings. We also have used other methods, including multiple 
compliance options, to help provide flexibility in air toxics rules.
    In addition to providing flexibility in national rules through 
trading and other means, EPA is working with States to promote market-
based approaches to help achieve national air quality standards for 
smog, particulates and other criteria pollutants. EPA has issued 
guidance to assist States in designing trading and other economic 
incentive programs to reduce criteria pollutants, and will soon update 
that guidance. EPA also has assisted States in setting up trading 
programs, such as California's RECLAIM program for reducing sulfur 
dioxide and nitrogen oxide emissions and the Ozone Transport 
Commission's program for controlling nitrogen oxide emissions among 
States in the Northeast. Through a unique State-EPA partnership, we are 
jointly implementing this NOx budget system for the Northeast.
    In issuing NOx budgets for 22 States and the District of Columbia 
to reduce the problem of transported ozone pollution in the East, we 
provided a model cap-and-trade rule for utilities and large industrial 
sources. The experiences of the acid rain program and the OTC effort 
show that this approach holds the potential to achieve regional NOx 
reductions in an efficient and highly cost-effective manner.
    The air program is striving to provide flexibility and create 
incentives for reducing emissions in a variety of ways. A number of air 
toxics rules--including those addressing polymers and resins, primary 
aluminum, and pharmaceuticals manufacturing--provide companies the 
opportunity to reduce reporting requirements if they achieve consistent 
good performance. We have issued guidance to allow States to count 
voluntary measures to reduce emissions from transportation sources--
such as ridesharing programs and ozone action days--toward their State 
planning requirements under the Act.
    This is the information age, and we are finding ways to use the new 
information technologies to provide citizens with environmental 
information they can use. Here are three examples:
      The Ozone Mapping Project, or AIRNOW, provides the public 
for the first time with real-time information about smog levels in 
their communities via color-coded maps and animations. These maps are 
made available on an Internet website and for local TV weather reports.
      E-GRID, the Emissions & Generation Resource Integrated 
Data base, is a right-to-know tool for anyone interested in emissions 
or fuel mix of any portion of the nation's electric power grid. It 
combines in one data base information from EPA and the Energy 
Information Administration on power generation, fuel information and 
measured emissions.
      The EPA funded SUNWISE Schools Program is building a 
national UV monitoring and education network within U.S. elementary 
schools. Using the Internet, students report the UV Index, a daily 
forecast of UV radiation levels people might experience, and 
recommended UV-protective behaviors. This innovative approach to 
sharing real-time environmental information with the public is a 
helpful tool in protecting the health of our children from overexposure 
to UV radiation while the ozone layer recovers.
    Another information-related development during the 1990's is the 
establishment of Clean Air Act small business technical assistance 
programs and small business ombudsmen in every State. These programs 
help small businesses comply with the Clean Air Act by providing free 
technical assistance. In 1997, State programs directly assisted over 
78,500 businesses and conducted almost 6,000 onsite consultations for a 
wide variety of industry sectors. To cite one success story: One Texas 
furniture company, after consulting with the State, invested $8,000 in 
more efficient, high-volume, low-pressure spray guns and related 
equipment and trained employees in their proper use. These guns spray 
more of the paint onto the product and less onto the floor and into the 
air. As a result, the firm's smog-forming VOC emissions dropped from 
just under 25 tons in 1996 to 16 tons in 1998, while its annual 
spending on paint and coatings fell from $69,000 to $35,000.
    In addition to these efforts, we have worked to continually refine 
and improve our implementation programs. The following examples show 
our willingness to make adjustments when programs need improvement.
    We recently overhauled our long-established process for evaluating 
whether new cars and light-duty trucks meet emissions standards. The 
revised rules will save auto manufacturers an estimated $55 million 
annually, while providing better information on whether cars on the 
road are continuing to meet the standards. The vehicle emission 
Compliance Assurance Program, or CAP 2000, redirects the focus of EPA 
and automakers from pre-production laboratory demonstrations to 
verification of actual in-use performance. This reduces paperwork by 50 
percent, as well as saving valuable pre-production time. In exchange, 
industry will conduct extensive emissions testing of vehicles ``in 
use'' on a broader scale than the government could conduct. This will 
give automakers substantial incentives to ensure that their vehicles 
meet the standards in actual use.
    We are moving forward in our efforts to improve the new source 
review permitting program. This program ensures that pollution from the 
addition of major new and modified sources does not significantly 
degrade the air quality in clean air areas, and that the national 
ambient air quality standards in non-attainment areas can be achieved. 
A key objective of our efforts is to streamline permitting without 
sacrificing environmental and other benefits of the current program. 
The new source review reform package will provide options for sources 
and States to adopt more flexible approaches to meet new source review 
requirements so that companies can plan and implement anticipated 
changes at their facilities with a greater degree of regulatory 
certainty. Concurrently, some of the reform measures will enhance 
environmental protection in some of the nation's most sensitive Class I 
areas, which include many of our national parks. We are nearing 
completion of an intensive set of stakeholder meetings that we expect 
will be very helpful when finalizing the reform package. Our schedule 
for finalizing the rule has been reset for spring 2000 to allow us to 
evaluate what we have learned from recent interactions with 
stakeholders.
    To address concerns raised about the Title V operating permits 
program, we issued two guidance documents that streamlined and 
simplified permit applications and helped with the large job of issuing 
initial permits to all covered facilities. We also continue to work 
toward finalizing a proposed permit revisions rule, where we are 
working closely with stakeholders to avoid unnecessary permit revision 
delays for industry while addressing citizens' interest in public 
review of significant changes.
    We continue to develop and test innovative ways to allow companies 
to adjust quickly to market demands without experiencing permitting 
delays. To date, we have worked with companies and States on 
approximately a dozen permits designed to provide operational 
flexibility and promote pollution prevention. Three permits have been 
issued to date and eight more are in progress.
    For example, working in conjunction with EPA and other 
stakeholders, the Intel Corporation was able to develop a flexible 
permit that allowed the company to receive advance approval for several 
types of operational changes at its facility in Oregon. As a result, 
Intel was able to avoid permitting delays and significant staff time. 
Additionally, Intel cut its air emissions in half while doubling 
production onsite. We are also planning to document the lessons learned 
from these permits so that successful flexible permitting approaches 
can be replicated throughout the country.
      what we've learned: predictions about infeasibility and cost
    Throughout the history of the Act, some critics have made dire 
predictions about the infeasibility of proposed controls or the 
negative impact that the Clean Air Act would have on industries, jobs 
and the U.S. economy. Nearly 9 years after the 1990 amendments, we have 
achieved progress in cleaning the air without the severe dislocations 
predicted by some critics. Experience shows that progress toward clean 
air and economic growth can go hand in hand. For example, data from the 
Bureau of Economic Analysis shows that between 1990 and 1995, there was 
a net gain of 2.2 million jobs in ozone nonattainment areas (a few were 
excluded due to data constraints).
                          reviewing the record
    Costs of the 1990 Amendments are proving to be far less than 
initial industry estimates. For example:

      The Clean Air Working Group, a key industry lobbying 
group during the 1990 reauthorization effort, estimated in August 1990 
that compliance costs would total $51 billion to $91 billion annually. 
Today, with the benefit of the added information from several years of 
implementation, EPA estimates the annual cost at $26.8 billion upon 
full implementation of the law in 2010.
      An industry study in 1989 predicted the cost of fully 
implementing an acid rain program at $4.1 billion to $7.4 billion. More 
recent estimates by EPA and the U.S. General Accounting Office were 
approximately $2 billion, and estimates from independent economists and 
industry researchers range as low as $1 billion.
      In 1993, industry estimated that meeting the Act's 
requirements for reformulated gasoline would add 16 cents to the price 
of a gallon of gas. In 1995, the year the program took effect, an 
Energy Information Administration survey found the actual cost was 3 
cents to 5 cents per gallon.

    Another concern of industry representatives during the 1990 
reauthorization was that it would be technologically infeasible to 
comply with some requirements. For example, a chemical company 
spokesman testified that accelerating the phase-out of ozone-depleting 
CFCs to January 1996 would cause severe economic and social disruption. 
At the same hearing, a refrigeration industry representative testified, 
``We will see shutdowns of refrigeration equipment in supermarkets. . . 
.We will see shutdowns of chiller machines, which cool our large office 
buildings, our hotels, and hospitals.'' In fact, the phase-out of CFC 
production was accomplished without such disruptions. Chemical 
companies helped make this possible by rapidly developing alternatives 
to CFCs.
    Similarly, a major American auto company representative in 1989 
testified that ``we just do not have the technology to comply'' with 
the initial Tier I tightening of tailpipe standards that became part of 
the 1990 amendments. Nonetheless, the auto industry was able to begin 
producing vehicles meeting the standards in 1993. More recently, as 
previously mentioned, the auto industry entered into a voluntary 
agreement with EPA and States to produce even cleaner, low emission 
vehicles that are already being sold in some areas.
    As these examples begin to illustrate, Clean Air Act requirements 
have created market opportunities and pressures for technology 
breakthroughs and performance improvements. Over and over again, 
industry has responded with great success, producing breakthroughs such 
as alternatives to ozone-depleting chemicals and new super-performing 
catalysts for automobile emissions. The result has been affordable 
improvements in air quality across the country, in conjunction with 
continued economic and population growth. There are many examples of 
technologies that were not commercially available 10 years ago, but 
that now are important parts of pollution control programs. Some of 
these include reformulated gasoline, selective catalytic reduction for 
NOx emissions from power plants, and cleaner-burning wood stoves. This 
pattern of technological progress is continuing today. EPA has 
identified a number of emerging technologies--ranging from fuel cells 
to ozone-destroying catalysts to new coating technologies--that may 
hold promise for achieving additional cost effective reductions of VOC, 
NOx and particulate matter.
                           benefits v. costs
    Some have charged that the costs of the Act exceed its benefits. 
But the most exhaustive study of this issue to date, an EPA study 
required by Congress, finds otherwise.
    Under section 812 of the 1990 amendments, we are required to assess 
the costs and benefits of the Act, first retrospectively and then with 
an ongoing series of prospective studies. The retrospective study, 
published in October 1997, included estimates of the number of 
incidences of health effects avoided in 1 year--1990--due to Clean Air 
Act pollution reductions. Here are estimates for a partial list of the 
avoided health effects:

      184,000 incidences of premature mortality and 8,700,000 
incidences of acute bronchitis related to particulates;
      10,400,000 lost IQ points and 12,600,000 incidences of 
hypertension related to lead;
      68,000,000 incidence-days of shortness of breath, 850,000 
incidences of asthma attacks, and 130,000,000 incidences of 19 acute 
respiratory-related symptoms related to particulates and ozone;
      39,000 incidences of congestive heart failure related to 
particulates and carbon monoxide; and
      22,600,000 lost work days related to particulates, and 
125,000,000 days with restricted activity due to particulates and 
ozone.

    The section 812 retrospective study found that the 1970 and 1977 
Clean Air Acts yielded human health, welfare and environmental benefits 
that exceeded costs by more than 40 to 1 ($22.2 trillion versus $523 
billion). Even at the low end of our range of estimates, monetized 
benefits exceeded costs by a margin of 11 to 1. EPA is now nearing 
completion of the first prospective study examining the incremental 
value of the 1990 amendments. Separately, EPA completed a cost/benefit 
assessment of the acid rain program in 1995, and found the health 
benefits alone far exceeded annual costs.
    It is important to note that the section 812 and acid rain studies 
determined that monetized benefits substantially exceeded costs even 
though many benefits could not be translated into dollars. Even with 
continuing progress in scientific and economic research, more than half 
of the known adverse effects of air pollution still cannot be expressed 
in economic terms. For ozone, some of the examples cited in the 812 
study include lung inflammation, chronic respiratory diseases, immune 
system changes, forest and ecological effects, and materials damage. 
Given this problem, it is important not to judge the value of 
additional environmental and public health protections solely on the 
basis of monetized costs and benefits.
    This is one reason for EPA's consistent position that cost-benefit 
analysis should not be the basis for our air quality standards. We 
continue to believe that our national air quality standards represent 
important health-based goals for the nation, and a benchmark for 
citizens interested in whether their air is safe to breathe. Although 
air quality standards are set solely on the basis of protecting health, 
we of course agree that cost is important to consider in devising 
environmental protection strategies. Costs are taken into account in 
implementation of the standards, as States and EPA make decisions on 
how to reach the goal.
               where we stand today: unfinished business
    As you know, we received an adverse Federal court decision in May 
that has stalled implementation of the new, more protective health 
standards EPA established in 1997 for ozone and fine particulate 
matter. A three-judge panel of the U.S. Court of Appeals for the 
District of Columbia Circuit remanded EPA's action on the two 
standards, challenging EPA's legal rationale as well as EPA's authority 
to enforce any new ozone standard under the 1990 amendments. The court 
did not challenge the underlying science. In light of the executive 
branch's strong disagreement with the ruling, the Department of Justice 
filed a petition for rehearing by the full court on June 28, 1999. We 
await the court's decision on whether to rehear the case. We continue 
to believe these standards are essential for protection of public 
health, and ultimately will be implemented. We recognize, however, that 
it will take some time for the legal issues to play out.
    In the meantime, the Administrator and I are determined to keep 
emission reduction efforts on track and to reduce health threats from 
smog and particulate matter. We are concerned that progress on the smog 
problem appears to have slowed or stopped in a number of areas in the 
last couple of years--and in some areas, we are in danger of 
backsliding. The national average ozone level increased 5 percent in 
1998. Also, in recent summers we have seen increases in the number of 
times air quality exceeded national standards in certain cities and 
national parks, particularly in the East. Partly because of this 
concern, this Administration, in partnership with States, is taking 
several actions to ensure that we continue making progress. 
Specifically:
    Tier II/Gasoline Sulfur. We are on track to issue more stringent 
Tier II emissions standards for cars and light-duty trucks along with 
rules to cut levels of sulfur in gasoline. Many metropolitan areas need 
the emissions reductions from these rules to achieve healthy air. These 
rules will cut emissions that contribute to ground-level ozone 
pollution and particulate matter, acid rain, crop damage and reduced 
visibility.
    Regional NOx Reductions. We will soon take final action on 
petitions from eight northeastern States calling upon EPA to impose NOx 
controls on power plants and large industrial combustion sources in 12 
upwind States. This action would reduce long-range transport of NOx and 
ozone pollution that is contributing to nonattainment problems 
downwind, as well as reducing pollution in States where the sources are 
located. EPA also will propose action on four petitions it has recently 
received from Delaware, Maryland, New Jersey and the District of 
Columbia.
    Last October, EPA issued the NOx State Implementation Plan (SIP) 
call rule requiring 22 eastern States and the District of Columbia to 
cut NOx emissions to reduce transported ozone pollution that is 
contributing to nonattainment problems throughout that region. States 
have relied on those reductions in devising their attainment plans for 
serious and severe ozone areas. However, shortly after issuing its 
NAAQS opinion, the court of appeals for the D.C. Circuit stayed the 
deadline for States to submit plans for complying with the NOx SIP call 
pending further order of the court. Oral arguments in the litigation 
are set for November 9.
    Ozone Attainment SIPs. For 10 serious and severe ozone 
nonattainment areas, EPA currently is assessing State plans for 
demonstrating attainment of the 1-hour ozone standard. It appears that 
many of these areas will need to commit to additional emissions control 
measures and/or make other improvements in their plans before these 
plans are approvable. EPA tentatively plans to propose action on these 
plans in late November.
    Heavy Trucks and Buses/Diesel Sulfur. Just last week Administrator 
Carol Browner announced a strategy to reduce by more than 90 percent 
harmful levels of smog-causing NOx and particulate matter, or soot, 
from heavy duty trucks and the very largest sport utility vehicles. The 
strategy includes a plan to produce cleaner diesel fuel.
    In addition, we are seriously considering reinstating the old 1-
hour ozone standard nationwide. Since issuing the more protective 8-
hour ozone standard, EPA has revoked the 1-hour standard in much of the 
country (wherever ozone levels met the old standard). But the court 
opinion now leaves much of the Nation without an adequately enforceable 
standard for ground-level ozone pollution to guard against 
deterioration in air quality. We are concerned about that possibility 
in light of recent air quality data.
    Looking more broadly to the future, we see implementing the 1997 
fine particulate standard as an integrating strategy that is key to 
making progress on multiple pollution problems. From a health 
standpoint, particulate matter is a priority because of its serious 
health effects. But there are other benefits to controlling pollutants 
that react in the atmosphere to form particulate matter--specifically, 
sulfur dioxide and nitrogen oxides. These measures also will reduce 
ozone pollution, air toxics, acid rain, regional haze and visibility 
impairment in our national parks, and nitrogen eutrophication of 
coastal waters. In contrast to other pollutant trends, NOx emissions 
are higher than in 1970. Given the important contribution NOx makes to 
multiple environmental problems, we need to bring these emissions down.
    In the air toxics arena, we are looking ahead to working with 
States and localities to implement the new Integrated Urban Air Toxics 
Strategy, issued in July. This strategy provides a framework for 
addressing the multiple sources of air toxics that together emit a 
combination of pollutants into our urban air. As you know, EPA has and 
will continue to develop national standards for stationary and mobile 
sources that improve air quality in both urban and rural areas. This 
new component of the national air toxics program includes plans for 
further reductions in toxic air emissions in urban areas, targeting 33 
pollutants that pose the greatest health threat in those areas. Also 
included are assessment activities to improve our understanding of the 
health and environmental risks posed by toxics in urban areas.
    Regarding the question whether it is time to re-open the Clean Air 
Act, it is important to ask if the law is still on target given today's 
air quality needs. We believe the law is still on target. Because the 
1990 Amendments were so forward-thinking and comprehensive in scope, it 
established this country's air pollution agenda for well into the next 
century.
    Because the Act is still relevant for today's needs, and because we 
are at a critical stage in implementation on a number of issues, we 
should carefully consider the implications of reopening the Act at this 
time. History shows that reauthorization of the Clean Air Act is a long 
and difficult task. The last time around, reauthorization efforts first 
began in 1981, and did not culminate until 1990. This reflects the fact 
that many parts of our society have a strong stake in the Act, and it 
can take intensive efforts to find common ground on a large number of 
issues. There is no guarantee that a reauthorization effort could be 
limited to a few issues. Many groups would promote proposals they 
believe should be a high priority. Although the Subcommittee would be 
pressed by some interests to pare back the requirements of the Act to 
cut costs, we can also be sure there there will be efforts to 
strengthen the Act and broaden its authorities, to ensure that we 
deliver on the promise of clean air for every American.
    We are prepared to work with the Subcommittee on a process of 
reviewing the Clean Air Act to consider where it might benefit from 
improvements. An example of an issue that this process could examine is 
whether the Act should provide EPA with direct authority to establish 
multi-State cap-and-trade programs and other incentive-based programs 
to address regional problems for any pollutant. This would avoid the 
need for each State separately to enact compatible trading programs. 
Let me stress that once this review process is completed, we must 
assess whether reopening the Act would be more helpful or more 
disruptive on the whole.
    It is imperative to continue the work that already is in motion. 
The best way to do that is to stay focused on the goal and work with 
everyone affected by the Act. This has and will continue to 
dramatically improve our ability to find sensible, cost-effective 
solutions to implementation hurdles and minimize the need for statutory 
changes. This approach takes time and patience, and sometimes the 
process is frustrating, but it has proven to pay off with sensible 
policies and environmental results.
    Thank you. I would be happy to answer any questions that you may 
have.
                                 ______
                                 
  Responses by Robert Perciasepe to Additional Questions from Senator 
                                 Thomas
    Question 1. The Clean Air Act Amendments of 1990 created the Title 
V Operating Permit Program. The Operating Permit Program purportedly 
was not to establish any new requirements. However, in Wyoming, this 
new program has added significantly to the amount of time it takes to 
get a permit. The first step is to obtain a State-issued construction 
permit, which requires public notice and comment. The permittee must 
then request a modification of the Title V Operating Permit, and once 
again go through public notice (for the exact same thing!) Once that 
step is taken, EPA then has 45 days to review and have the opportunity 
to veto the permit. It appears that this process is being overseen by 
the Department of Redundancy Department. What are the opportunities for 
streamlining the process, while maintaining State primacy for the 
review and issuance of the permits (i.e., EPA doesn't take over the 
whole process)?
    Response. Your question references two separate State permitting 
programs required by the Clean Air Act--preconstruction permit 
programs, also known as ``new source review'' (NSR) programs, and 
operating permit programs under Title V.
    EPA believes it is possible for States to merge the required EPA 
and public review periods (for sources subject to both programs), as 
long as the merged review is adequate to meet the goals of both NSR and 
Title V. The EPA has encouraged States to do so, and has approved 
merged programs under the current title V regulations. However in 
keeping with principles of State primacy, the EPA does not require 
States to merge review. In practice, some States have merged programs 
while others have not. We would welcome working with Wyoming on such a 
merger.
    Preconstruction permit programs and Title V operating permit 
programs have different purposes. An NSR preconstruction permit 
establishes control requirements for a source that is being built or 
modified. A Title V operating permit consolidates in one place all of 
the air pollution requirements (including NSR requirements) that apply 
to a large facility, and specifies how compliance will be demonstrated. 
This clarifies for the regulated facility and the public the air 
pollution requirements that apply to the facility, encouraging improved 
compliance.

    Question 2A. There are a number of routine repair and replacement 
upgrades that utilities can undertake to improve their efficiency 
thereby resulting in lower NOx emissions per unit of electricity 
generated and substantially reducing global warming gases like 
CO2. Unfortunately, it is my understanding that EPA's 
interpretations of its current regulations, and the EPA's failure to 
finalize its position on these issues for its new regulations on new 
source review, are discouraging utilities from undertaking these 
improvements that are good for the economics of the utility and the 
environment. It seems counterproductive to discourage these efficiency 
improvements while the EPA is working through its rulemaking process. 
Does EPA believe that utilities must replace parts with the exact 
original technology that was installed in a turbine or boiler at the 
time that the unit was manufactured or are these plants allowed to use 
the advancements in technology that every industry has seen over the 
past several years?
    Response. Projects that involve routine repair and replacements are 
exempt from major new source review (NSR). This has been a longstanding 
provision of the NSR rules, and there are no proposals to change this 
exemption. In addition, under the current major NSR regulations, a 
utility may make any type of change to an existing unit, including new 
technology that improves efficiency, to the extent that the change does 
not increase actual tons-per-year emissions by a significant amount 
over the baseline period established in the regulations. Finally, the 
utility may still make the improvement and increase emissions, as long 
as it installs the best currently available pollution control 
technology at the time.
    The Clean Air Act recognizes that if a unit is undergoing 
modifications that will generate more air pollution, then that is the 
best time to install new pollution control equipment.
    The Clean Air Act Amendments of 1977 did not require updated 
pollution controls for many aging utility facilities. Many of these old 
boilers have not been retired. So while other sources reduced air 
emissions over the past 20 years, some utilities continued to operate 
using pollution control equipment from the 1950's and 1960's.
    In the more than two decades of the NSR program, the EPA has worked 
with the States and industry to reduce air pollution from existing 
facilities at the time it is most cost-effective to do so when a 
modification that will increase emissions is occurring. EPA, States, 
and other groups are available to answer questions or clarify 
regulations if a source is uncertain about whether a specific project 
would fall under the NSR program.

    Question 2B. What do you plan to do to solve this problem under the 
current regulations and how will your new regulations address these 
much-needed efficiency improvements?
    Response. As noted above, the current regulations already allow 
utilities to upgrade their equipment without review, including making 
efficiency improvements, as long as the upgrade does not significantly 
increase actual tons-per-year emissions.

    Question 2C. If you cannot solve this problem through your 
regulations, do you think that legislative action would be appropriate 
to provide EPA with flexibility to address these concerns?
    Response. The EPA does not believe that legislative action is 
needed at this time to address concerns about efficiency improvements. 
The current regulations do not prevent a utility from making efficiency 
improvements . They simply ensure that where any type of change 
significantly increases actual tons-per-year emissions, appropriate 
control technology is applied.

    Question 3. What is EPA's schedule for acting on the section 126 
petition targeting NOx sources? Isn't it true that the factual basis 
for EPA's NOx SIP call and for the section 126 petitions that EPA has 
received targeting specific sources of NOx are essentially the same? 
Why then does EPA not await judicial review of the SIP call prior to 
acting on the section 126 petitions?
    Response. EPA generally granted the petitions from Connecticut, 
Massachusetts, New York, and Pennsylvania on December 17, 1999, and 
established control requirements for certain NOx sources in upwind 
States. In that final rule, EPA made section 126 findings based on the 
1-hour ozone standard and stayed the portion of the rule based on the 
8-hour ozone standard.
    The EPA denied petitions for the 1-hour ozone standard filed by 
Maine, New Hampshire, Rhode Island and Vermont in April 1999 because 
these States no longer had areas that were not attaining the 1-hour 
standard. The EPA is reviewing section 126 petitions submitted in 1999 
by New Jersey, Delaware, the District of Columbia, and Maryland. When 
the review is complete, the Agency intends to issue a proposed response 
to these petitions.
    On March 3, 2000, the U.S. Court of Appeals for the District Of 
Columbia Circuit issued a decision largely upholding the NOx SIP call. 
EPA is analyzing the effects of that decision.
    The EPA did not await a judicial decision on the NOx SIP call 
because, under section 126 of the Clean Air Act, the petitioning States 
had the right to a decision from EPA. Thus, regardless of pending 
litigation on the NOx SIP call, EPA had a statutory obligation to take 
timely action on the section 126 petitions and the Agency has acted 
accordingly. Also note that on October 29, 1999, the D.C. Circuit Court 
of Appeals denied a motion for a stay of the section 126 rule pending 
resolution of the NOx SIP call litigation. EPA discussed the 
relationship between the NOx SIP call and the section 126 rule in 
detail in the December 17, 1999 final rule and response to comments 
document.

    Question 4A. What is your rulemaking schedule regarding the NSR 
modification rule?
    Response. Over the last year, we have been holding extensive 
meetings with various stakeholder groups working on NSR reform. 
Additional meetings with these groups are scheduled. We will evaluate 
all of the input and make a decision on whether we should proceed to 
issue final decisions on some parts of NSR Reform and potentially to 
propose for comment other changes to NSR. If we decide to proceed this 
way, the earliest that these final and proposed decisions would be 
published would be in Spring 2000.

    Question 4B. Where do you stand in the stakeholder consultation 
process?
    Response. Consultation with stakeholders is ongoing. In addition to 
the public comment period and public hearing associated with the NSR 
Reform proposal, EPA has had ongoing meetings with stakeholders. For 
example, a large meeting was held in February 1999 to discuss new ideas 
from stakeholders, and followup meetings have been occurring regularly 
since then. Most recently, over the last 3 months, EPA has been having, 
on average, three or four meetings each month with stakeholder groups, 
including State agencies, environmental groups, and several different 
industry groups. Additional meetings are scheduled.
    EPA has conducted a longstanding dialog with external stakeholders 
on the new source review program. Under the auspices of a Clean Air Act 
Advisory Committee (CAAAC) subcommittee dedicated to this subject, as 
well as through less formal means, there have been dozens of 
opportunities for exchanges of views. These discussions have been 
productive in helping the Agency develop approaches that can provide 
additional flexibility for affected industries while continuing to 
protect the environment.

    Question 4C. Do you plan to make any revisions to the proposed rule 
based on those consultations?
    Response. The EPA continues to evaluate the issues raised by the 
NSR Reform proposal, and intends to consider all comments made during 
stakeholder meetings and during the public comment period. We expect 
the final NSR Reform rule to differ from the proposal based on comments 
received, but have not yet finalized our decisions on all the issues 
raised.

    Question 4D. Do you believe that any project that improves 
productivity requires an NSR permit?
    Response. Whether or not projects require NSR permits depends on 
whether they are non-exempt changes that increase total emissions on a 
tons per year basis. A project intended to improve productivity will 
not necessarily increase emissions. However, the ones that do result in 
significant emissions increases are subject to review.
                                 ______
                                 
  Responses by Robert Perciasepe to Additional Questions from Senator 
                                Moynihan
    Question 1. Please comment on the current sulfur dioxide cap and 
trade program and whether you believe it could serve as a template for 
a program targeted at nitrogen oxides.
    Response. The current Acid Rain sulfur dioxide cap and trade 
program has been highly successful. The economic incentives created to 
encourage emission reductions have resulted in significant, low cost, 
early reductions resulting in benefits to health and the environment.
    For the first time under the Clean Air Act, in 1994, EPA began 
collecting actual hourly emissions data (SO2, NOx, 
CO2) from large power generating sources through Continuous 
Emissions Monitoring systems (CEMs). There has been 100 percent 
compliance with the SO2 emissions reduction requirements for 
this section of the Clean Air Act. Beginning in 1995, there have been 
significant, cost-effective SO2 reductions. Utility 
SO2 emissions have dropped by over 4 million tons annually 
relative to the 1980 baseline. The first 4 years of the program have 
produced SO2 reductions beyond the legal limit in almost 
every affected State, with major reductions in the highest emitting 
areas (Midwest). Full implementation will achieve a 10 million ton 
reduction from utility and industrial sources, approximately 40 percent 
below 1980 levels.
    During Phase I of the SO2 allowance trading program 
(1995-1999), allowance market activity steadily increased both between 
and within private organizations. The annual cost of complying with the 
Acid Rain Program, originally estimated by EPA at more than $4 billion, 
is now estimated at approximately $2 billion upon full implementation 
(EPA's Section 812 study of Clean Air Act costs and benefits, published 
in November 1999). The estimate has changed because more utilities than 
expected have utilized coal switching, because both coal switching and 
SO2 scrubbing have proved less expensive than expected for 
multiple reasons, and because the trading system has proven to be 
efficient and accepted by the utility industry.
    Such impressive results achieved under this program have resulted 
in expressed interest in cap and trade as a successful model for 
implementing other pollutant reduction programs. A similar, ongoing 
program modeled on the SO2 program already provides a 
template for a program targeted at nitrogen oxides. The Ozone Transport 
Commission (OTC), composed of 12 Northeastern States and the District 
of Columbia, is implementing a cap and trade program to reduce 
summertime nitrogen oxide (NOx) emissions during the ozone season. EPA 
has accepted the request of the OTC to administer the NOx cap and trade 
program, using the SO2 cap and trade program as a model. 
Preliminary results from 1999 (the first summer of operation) indicate 
that the NOx Budget Program is achieving its goal of reducing ozone 
season NOx emissions. There has been a 55 percent reduction since 1990 
by the eight States currently participating in the program. When the 
program is fully implemented in 2003, summertime NOx emissions in the 
Northeast will be reduced by 70 percent (from 1990 levels), which is 
expected to result in lower ozone levels and improved health for 
Northeast residents.
    The OTC NOx Program demonstrates that emissions cap and trading 
mechanisms can achieve significant NOx emission reductions and improve 
air quality in the United States at a lower cost than traditional 
command and control approaches. Emissions were reduced 20 percent below 
required levels and NOx allowance costs are well below early estimates.
    In fact, the acid rain and OTC programs have proven so successful 
that we developed a cap and trade program to implement the regional NOx 
reductions called for under the 22-State NOx SIP call rule and the 
section 126 regional NOx rule.

    Question 2. On October 14, New York Governor George Pataki 
announced a plan to significantly reduce emissions of sulfur dioxide 
and nitrogen oxides from utilities in New York State. What effect will 
this proposal have in New York? Do you think it will have any 
implications in other States? Do you think it will have any effect on 
initiatives to mitigate interstate air pollution?
    Response. New York State's proposed emissions restrictions will 
lead to lower emissions and will likely improve air and environmental 
quality in New York and in areas downwind of New York , the 
implications of which depend on the approach taken by New York. If New 
York develops a cap and trade program, the additional reductions likely 
will be achieved more cost effectively than through a command and 
control approach. The smaller trading market of sources in New York 
only will likely lead to fewer trading and cost saving opportunities 
for New York utilities. However, if the health and environmental 
benefits can be achieved cost-effectively, other States may consider 
implementing similar programs to reduce pollution in their States, as 
well as to mitigate interstate air pollution.
                                 ______
                                 
  Responses by Robert Perciasepe to Additional Questions from Senator 
                               Lieberman
    Question 1. Could you describe briefly how EPA considers costs and 
benefits in setting and implementing air quality standards?
    Response. For three decades through 6 different Administrations and 
15 Congresses this nation has adhered to the principle that air quality 
standards should protect public health, including the health of 
sensitive populations like asthmatics, the elderly, and people with 
heart and lung disease. We continue to believe that our national air 
quality standards represent the goals we are striving to achieve, and a 
benchmark for citizens interested in whether their air is safe to 
breathe. Under the Clean Air Act, costs are not considered in setting 
these health-based standards. (See response to question 6 from Senator 
Baucus for a fuller discussion of this point.)
    However, costs are--and should be--a central consideration as State 
and local air agencies, EPA and Congress determine control strategies 
and the length of time areas have to meet air quality standards. The 
Clean Air Act generally provides more time for highly polluted areas to 
attain air quality standards, and less time for less polluted areas to 
attain. For example, Los Angeles--which has generally had the worst 
ground-level ozone problem in the country--is provided with more time 
to achieve the standards than areas with less severe ozone problems. 
This provides time to develop less costly technologies and strategies 
to reduce air pollution, and to implement them. States consider costs 
in deciding the control requirements to include in State Implementation 
Plans. EPA considers costs in developing emissions control rules and 
guidance at the Federal level. For example, in developing guidelines 
for States on ``reasonably available control technology''--required by 
the act for certain sources in nonattainment areas--EPA considers costs 
in determining what is ``reasonably available.'' (See response to 
question #2.B. from Senator Lieberman for more on consideration of 
costs.)

    Question 2. In order to clarify the extent to which the scientific 
peer review is incorporated into the agency's rulemaking and standard-
setting procedures, it would be helpful to use an example of 
rulemaking, such as the revision of the NAAQS or the Tier II tailpipe 
standards, to illustrate the process.
    A. Please provide a chart detailing the extent and timing of 
scientific input, dialog, and peer review for setting air quality 
standards.
    Response. The attached chart lays out the process for EPA's review 
of the NAAQS, beginning with the publication of scientific studies in 
peer-reviewed journals through the public comment period and concluding 
with EPA's publication of its final decision. All studies on which EPA 
relies are first published in peer-reviewed journals. (E.g., EPA 
reviewed thousands of peer-reviewed studies when revising the ozone 
standard.)
    EPA then prepares a ``criteria document'' that identifies and 
synthesizes the relevant studies. Each draft chapter of the document 
undergoes further external peer review--it is reviewed by 
representatives of the scientific community, industry, public interest 
groups, and the public as well as the Clean Air Scientific Advisory 
Committee (CASAC), a Congressionally mandated group of independent 
scientific and technical experts.
    EPA revises the criteria document in light of the comments received 
and, as appropriate, seeks further CASAC and public review to assure 
that the document represents a comprehensive and accurate summary of 
the most recent available science.
    EPA also prepares a ``staff paper'' that makes policy 
recommendations about the standards based on the criteria document. The 
staff paper is then subjected to a similar round of public and CASAC 
scientific peer review.
    EPA then goes through an extensive public notice and comment 
process before making any decisions to retain or revise an ambient air 
quality standard and provides CASAC an opportunity to review EPA's 
proposed decisions before making final decisions. During the last 
revision of the NAAQS, CASAC held a series of public meetings over 3 
years.
    It should be noted that one additional opportunity for scientific 
review not shown on this chart is provided at the time EPA publishes 
its proposed decision in the Federal Register, when the Clean Air 
Scientific Advisory Committee is provided with a copy of EPA's proposal 
for review. In past reviews, CASAC has typically declined the 
opportunity to conduct a formal review at this stage.

    Question 2B. Please provide the same type of chart detailing how 
cost considerations are brought into agency considerations of 
implementation of a regulation, whether through the SBREFA process, 
industry consultation, or other agency analysis.
    Response. Cost is a key consideration as States, EPA and Congress 
consider strategies for achieving national ambient air quality 
standards (NAAQS). This factor helps determine which pollution sources 
should reduce emissions, by how much, and on what timetable.
    This question focuses on how EPA considers cost in Federal rules 
requiring pollution sources to reduce emissions, which complement State 
strategies for attaining air quality standards. Attached is a chart 
providing a general overview of the cost analysis process for EPA 
rules. These cost analyses range from general assessments of cost 
effectiveness and impacts of a draft rule, to more specific analyses of 
whether rules would create unfunded mandates for State and local 
governments, or have substantial small business impacts.
    The Agency consults with stakeholders to develop rules that reduce 
air pollution at reasonable cost. EPA spends extensive time and effort 
to involve various stakeholders through its Clean Air Act Advisory 
Committee, public meetings, regulatory negotiations, stakeholder groups 
under the Regulatory Flexibility Act (as amended by the Small Business 
Regulatory Enforcement Fairness Act or SBREFA), and informal meetings 
and discussions. EPA often voluntarily conducts outreach to small 
business and other industry groups on cost and other rulemaking issues.
    In the case of the Tier 2 rule requiring cleaner vehicles and low 
sulfur in gasoline to enable effective vehicle emission controls, EPA 
conducted the cost analyses referenced in the attached chart--and also 
conducted a special statutorily required study prior to the rulemaking 
on several issues including cost. The Clean Air Act required EPA to 
study ``whether or not further reductions in emissions from light-duty 
vehicles and light-duty trucks should be required'' beginning between 
the 2004 and 2006 model years. Specifically, the study and subsequent 
rulemaking examined:

      the need for further reductions in emissions in order to 
attain or maintain the national ambient air quality standards
      the availability of technology to meet more stringent 
standards, taking cost, lead time, safety, and energy impacts into 
consideration the need for, and cost effectiveness of, such standards, 
including consideration of alternative methods of attaining or 
maintaining the national ambient air quality standards.

    Throughout the assessment of the Tier 2 program, extensive cost 
analyses were conducted and provided to the public for review and 
comment. For the vehicle program, for example, EPA developed 
information based on discussions with automakers, emission control 
manufacturers, in-house testing and research, and the California Air 
Resources Board. That information was utilized to develop detailed 
manufacturer costs for each vehicle class, including: increases in 
emission control hardware costs (detailed sub-analyses); assembly 
costs; research and development; tooling; certification; markup 
(overhead/profit); and projected short- and long-term cost trends.
    EPA promulgated the Tier 2 standards on December 21, 1999, based on 
criteria laid out in the Act. Cost analyses for the final rule showed, 
for example, that:

      the annual benefits of the program when fully phased-in 
far exceed the costs
      the Tier 2 vehicle standards and low sulfur gasoline is a 
cost effective program

    Based on consultation with stakeholders, EPA included flexible 
compliance provisions in the rule that will reduce the overall cost of 
compliance to regulated parties. These provisions include averaging, 
banking and trading; phase-in of vehicle standards; regional phase-in 
of low sulfur gasoline; and, hardship provisions for qualifying 
refiners, including a phase-in of the standards for small refiners 
based on information developed during the SBREFA process.
    It is important to note that States have principal responsibility 
under the Clean Air Act for developing strategies to achieve the 
national ambient air quality standards (NAAQS). The Act provides 
substantial flexibility in the States' development of implementation 
plans to consider costs and mitigate potential impacts on businesses. 
The Act requires that cost considerations be included in determining 
levels of control required by the Act such as ``reasonably available 
control technology'' (RACT) and ``best available control technology'' 
(BACT), and this is reflected in EPA guidance to States. Additional 
opportunities for mitigating impacts on businesses include phase-in of 
controls on existing sources, use of regional control strategies, and 
use of flexible strategies such as emissions trading and other economic 
incentives. The Act and EPA guidance provide for use of trading and 
economic incentive strategies.
    The Act allows significant time to identify and implement cost 
effective strategies for attaining the NAAQS. For certain NAAQS, 
Congress in the 1990 amendments categorized areas according to the 
severity of pollution, and provided the more polluted areas with more 
time to attain. For other NAAQS, the Act can provide up to 12 years for 
areas designated nonattainment to attain. Since at least 2 years 
generally elapse before areas are designated nonattainment and longer 
in the case of the 1997 ozone and PM NAAQS revisions due to the need to 
gather than analyze air quality data the Act provides States with 
substantial time for development of cost effective attainment 
strategies.
    In developing guidance for States on implementation of air quality 
standards, EPA has consulted heavily with representatives of private 
industry, the environmental community and State, local and other 
Federal agencies For example, in the case of the 1997 ozone and 
particulate matter NAAQS, EPA convened an advisory committee under the 
provisions of the Federal Advisory Committee Act which advised EPA over 
a 2-year period. EPA also consulted with small business representatives 
to obtain recommendations on how States could mitigate adverse impacts 
on small businesses as they develop and implement their State 
Implementation Plans.

    Question 3. Some confusion emerged during the hearing regarding my 
statement that the dramatic increases in asthma cases among children 
has made them more vulnerable to smog pollution. Am I correct in 
understanding that while the cause of asthma is not attributed to a 
single pollutant, smog and soot can exacerbate their health problems?
    Response. You are correct. Available scientific information does 
not currently demonstrate that air pollution actually causes asthma, 
but numerous scientific and medical studies have shown an association 
between high pollution levels and increased hospital admissions for 
treatment of asthma and other respiratory illnesses. There is concern 
that repeated exposures and responses to air pollution adversely 
affects people with asthma and respiratory illnesses, requiring 
increased use of medication, medical treatment, and/or emergency room 
visits and hospitalization. This is of special concern in light of the 
growing number of people with asthma, particularly children.

    Question 4. Some suggested that we should look more closely at the 
problem of indoor air pollution as a cause of asthma and other health 
problems. What current statutory authority does EPA have to regulate 
indoor air? Would the agency be willing to provide recommendations to 
Congress on how to establish authority to reduce pollution from indoor 
sources?
    Response. EPA does not currently have statutory authority to 
regulate indoor air. Under Title IV of the Superfund Amendments and 
Reauthorization Act of 1986, the ``Radon Gas and Indoor Air Quality 
Research Act of 1986,'' EPA is authorized to establish a research 
program with respect to indoor air quality, demonstrate methods for 
reducing or eliminating indoor air pollution, and disseminate 
information to assure the public availability of any findings.
    The Agency is willing to work with the committee to review the 
Clean Air Act and indoor air issues. As we go through the hearing 
process with the Committee, we will have a better feel for whether 
reopening the Act would be more beneficial or disruptive on the whole. 
One topic that would be worth evaluating as part of the hearing process 
is whether EPA should be given additional authority to encourage States 
and industry to take actions that reduce risks from indoor air 
pollution.

    Question 5. Numerous allegations about the relationship between job 
loss in nonattainment areas were made during the hearings. Is it true 
that the number of jobs in nonattainment areas is declining?
    Response. In fact, the number of jobs in non-attainment areas has 
been increasing. There were 294 counties in non-attainment status in 
1997. From 1990 to 1997, the number of jobs in these counties increased 
by more than 5.8 million, from 66.8 million to 72.6 million. Data are 
from the Regional Economic Information System produced by the Bureau of 
Economic Analysis, U.S. Department of Commerce.

    Question 6. Are there reasons that cost considerations should be 
treated differently in setting and implementing standards under the 
Clean Air Act than under the Safe Drinking Water Act?
    Response. There are important similarities in the way that costs 
are considered under the Safe Drinking Water Act (SDWA) and the Clean 
Air Act. First, both laws establish health-based goals . Second, under 
both Acts, costs are considered at the implementation stage, when 
control requirements for an industry are being established .
    As your question indicates, there are differences as well as 
similarities in standard-setting under the two statutes. Under the 
Clean Air Act, EPA develops national ambient air quality standards to 
protect public health, without consideration of costs. Costs and 
benefits are considered (by States, EPA, and in some cases, Congress) 
in determining which pollution sources should reduce emissions, and how 
quickly the reductions must be achieved.
    Under the drinking water act, EPA establishes health protection 
goals for drinking water quality without regard to cost, and then sets 
regulatory standards for public water systems, considering costs and 
technological availability. The 1996 SDWA amendments expanded the 
existing authority to consider costs in setting these regulatory 
standards by requiring EPA to develop a health risk reduction and cost 
analysis and by giving EPA conditional discretion, based on the 
analysis, to set a regulatory standard that maximizes health risk 
reduction benefits at a cost that is justified by the benefits.
    Differences in the two laws stem from differences in the tasks of 
reducing air pollution and cleaning up drinking water:
    A drinking water standard establishes the requirements for a 
particular industry (public water systems). By contrast, under the 
Clean Air Act, requirements for particular industries or sources are 
established after the air quality standard is set, providing 
considerable opportunity to consider costs at this second stage.
    Setting an air quality standard triggers an implementation process 
in which choices must be made concerning which types of pollution 
sources should reduce emissions, in which areas, to what degree, by 
what deadline. This process includes, for example, development of 
enforceable State Implementation Plans and national rules such as motor 
vehicle standards. Costs are a central factor in determining reasonable 
emission reduction requirements.
    Estimates of the cost of achieving a national ambient air quality 
standard are subject to much more uncertainty than estimates of the 
cost of meeting a drinking water standard, for several reasons.
    Standards for drinking water quality constitute specific, 
technology-based requirements for one industry--public water systems. 
There are identified types of facilities and corresponding technologies 
that serve as benchmarks that engineers use to calculate costs of those 
requirements. So cost estimates are based on a known set of 
requirements for one industry.
    By contrast, when EPA sets a National Ambient Air Quality Standard, 
it is unclear at that time which sources will be regulated and/or to 
what degree they may be regulated, and over what geographic area. There 
is a large universe of pollution sources and potential emission 
reduction strategies. So although cost estimates for NAAQS can be 
developed, they are subject to additional categories of uncertainty not 
involved with cost estimates for drinking water standards: (1) 
uncertainties regarding which types of pollution sources will be 
regulated, in which geographic areas, (2) uncertainties regarding the 
nature and stringency of requirements to be set for those sources, (3) 
the additional uncertainty resulting from conducting cost estimates for 
numerous industries, rather than for one industry, (4) uncertainty 
arising from the modeling of complex atmospheric chemistry and 
meteorology to estimate effects of precursor emission reductions on 
ambient levels of a NAAQS pollutant. As a result, uncertainties 
regarding the cost of achieving a NAAQS typically are much greater than 
those regarding the cost of meeting a drinking water standard.
    In addition, most drinking water standards are required to be 
achieved within a relatively short time period, typically from three to 
5 years. By contrast, Congress has provided longer time periods (in the 
case of the 1-hour ozone standard, up to 20 years, depending on the 
severity of an area's pollution) for the Nation as a whole to attain 
air quality standards. As a result, technology advances can reduce 
costs and make it possible to achieve reductions that were once thought 
infeasible. The history of the Clean Air Act provides many examples of 
this phenomenon (see response to question #2 from Senator Baucus). This 
technology innovation factor further adds to the uncertainty of 
estimating the cost of achieving a NAAQS.
    To recap, both laws establish health-based goals, and then consider 
costs at the implementation stage, when control requirements for an 
industry are being established.
                                 ______
                                 
  Responses by Robert Perciasepe to Additional Questions submitted by 
                             Senator Baucus
    Question 1. Did EPA or other Federal agencies cutoff the 
distribution or allocation of acid rain allowances prematurely or 
provide them on a first come/first served basis? Please comment on the 
distribution process.
    Response. All of the SO2 allowances were distributed by 
EPA as authorized by the Clean Air Act. The vast majority (about 90 
percent) of the Phase I allowances either were distributed to the 
sources listed in Table A of section 404 of the Act or were allocated 
according to the formulas provided in section 404. The rest were 
distributed through an auction authorized by section 416 of the Act. 
Except for the auction, Phase II allowances were allocated to all 
eligible units according to the formulas provided in section 405 of the 
Act and then, as required by the Act, were decreased (approximately 10 
percent) to achieve the 8.95 million ton emissions cap.
    Your question concerning ``premature'' or ``first-come, first 
served'' allowance allocations seems to refer to the allocation of 
allowances in the Phase I Extension Reserve. This reserve, which 
represented a small portion (about 10 percent) of total Phase I 
allowance allocations was distributed on a first-come, first-served 
basis, again according to the statute. Section 404 of the Act provided 
that designated representatives who commit to install technologies 
achieving 90 percent reduction of units' SO2 emissions could 
request a 2-year extension of the deadline for meeting Phase I emission 
reduction requirements by applying for additional allowances from a 
special allowance reserve. Section 404 required EPA to process 
extension requests ``in order of receipt''. Since the reserve might be 
oversubscribed, EPA determined, after taking public comment, that 
distributing the Phase I extension allowances using a lottery system 
was consistent with the statutory language and the least burdensome and 
most expeditious method for ranking Phase I extension applications. The 
full amount of reserve allowances was distributed, according to a 
lottery system, to the eligible units. However, some utilities 
preferred a pro rata method of distribution because they were concerned 
that they might not be awarded any allowances in the lottery. These 
utilities entered into and implemented a private agreement under which 
the allowances awarded through the lottery were re-distributed to all 
eligible units on a pro rata basis.
    The Clean Air Act provided for some other special reserves of 
allowances, e.g., for conservation and renewable energy and for small 
diesel refiners. These reserves contained enough allowances for all 
eligible participants to receive the full amount of allowances to which 
they were entitled under the Act.

    Question 2. How does EPA estimate the ability of the regulated 
community to innovate and thereby meet more stringent standards?
    Response. EPA works closely with regulated communities to obtain 
information on currently available technologies and their estimated 
costs, and on emerging technologies. Nonetheless, as is the case for 
technology generally, air pollution control technology is developing so 
rapidly that it is difficult to predict very far into the future. Over 
short time horizons for a particular industry, however, it is possible 
to make some educated judgments regarding feasibility and likely cost 
of emerging technologies.
    Regarding air quality standards, we know based on experience that 
technological advances over the longer term will provide substantial 
help in meeting our clean air goals. But it is inherently difficult to 
estimate the amount of emissions reductions and cost savings that will 
be provided five, 10 or 15 years from now by technological advances in 
numerous industries--including advances that are entirely unforeseen 
today.
    Our experience over the past 30 years, and the promise of cleaner 
technologies emerging today, strongly suggest that technological 
innovation will continue to produce new, cleaner processes and 
performance improvements that reduce air pollution at reasonable cost. 
The Clean Air Act has helped lead to technology innovation and 
performance improvements. Over and over again, innovative companies 
have responded to the challenges of the Act with great success, 
producing breakthroughs such as alternatives to ozone-depleting 
chemicals and new super-performing catalysts for automobile emissions.
    Technological innovation has enabled the regulated community to 
achieve emissions reductions some critics had thought simply 
infeasible, and to reduce anticipated compliance costs. Two examples of 
this phenomenon are the Tier I tailpipe standards for cars and light-
duty trucks, and the phaseout of CFCs. (See written testimony by 
Assistant Administrator Bob Perciasepe.) Another example in which 
technological advances have reduced costs is sulfur dioxide scrubbers 
for power plant emissions. Scrubber efficiency has improved from 
average reductions of around 80 percent in the early 1980's to over 90 
percent reduction in the 1990's while capital costs decreased 
substantially.
    There are many examples of technologies that were not commercially 
available in the United States a dozen years ago, but that now are 
important parts of pollution control programs. These include:

      Selective Catalytic Reduction (SCR) for NOx emissions 
from coal-fired power plants;
      Fuel lean or advanced gas reburn technology for NOx;
      Scrubbers which achieve 95 percent SO2 control 
on utility boilers (available but not achieved by utilities in the 
United States a dozen years ago);
      Sophisticated new valve seals and detection equipment to 
control leaks;
      Water and powder-based coatings to replace petroleum-
based formulations;
      Reformulated gasoline;
      LEVs (Low-Emitting Vehicles) that are far cleaner than 
had been believed possible in the late 1980's (an additional 95 percent 
reduction over the 1975 controls);
      Reformulated lower VOC paints and consumer products;
      Safer, cleaner burning, wood stoves;
      Dry cleaning equipment which recycles perchlorethylene; 
and
      CFC-free air conditioners, refrigerators and solvents.

    This pattern of technological progress is continuing today. In the 
regulatory impact statement for the 1997 ozone and PM NAAQS, EPA 
identified a number of emerging technologies--ranging from fuel cells 
to ozone-destroying catalysts to new coating technologies--that may 
hold promise for achieving additional cost effective reductions of VOC, 
NOx and particulate matter. Similarly, the University of California-
Riverside's Center for Environmental Research & Technology has 
identified a long list of new and emerging technologies that may help 
achieve cleaner air in the 21st century (see attached document).
    Based on this, EPA believes it is clear that technological advances 
will continue to help us make progress toward healthful air. We can 
continue to promote innovation by maintaining air quality standards 
stringent enough to protect health, thereby challenging the Nation to 
continue to develop new cleaner technologies. In addition, we can 
promote emission reduction strategies that provide flexibility on the 
means of reducing emissions (e.g., market-based strategies) to allow 
use of innovative emission reduction methods.

    Question 3. Please provide some more examples, relative to The 
Clean Air Act Amendments of 1990, of the costs of compliance estimated 
by the regulated community prior to passage of that Act versus the 
actual costs experienced today.
    Response. My written testimony provided five examples in which the 
regulated community (1) over-estimated costs of the 1990 amendments, or 
(2) incorrectly predicted that proposed requirements were simply 
infeasible. The cost examples involved the overall cost of the 1990 
amendments, the cost of the acid rain program, and the price of 
reformulated gasoline. The feasibility examples involved the CFC 
phaseout and the Tier I auto tailpipe standards.
    EPA anticipates being able to provide you with more examples in the 
near future.

    Question 4. A utility witness suggested that EPA is in a ``mad 
rush'' to have NOx SIP Call controls in place by 2003. How long has it 
been recognized that regional NOx reductions would be necessary to 
address ozone transport problems? How long has EPA been discussing 
regional NOx controls with States and the utility industry?
    Response. Since the late 1980's it has been recognized that 
regional NOx reductions are necessary to address ozone transport 
problems. EPA and States have been working for years to determine how 
best to reduce smog-causing emissions from power plants and other 
sources, and have been discussing regional NOx controls with utilities 
for nearly a decade, beginning in the northeastern States.
    The provision in the 1990 Clean Air Act Amendments establishing the 
Ozone Transport Commission explicitly recognizes the issue of ozone 
transport. Furthermore, in 1991, the National Academy of Sciences 
issued a report (``Rethinking the Ozone Problem in Urban and Regional 
Areas'') that stated that in many parts of the country controlling NOx 
emissions would be necessary to reduce ozone. Since 1993, States have 
been expressing concern to EPA that emissions from ``upwind'' areas 
need to be addressed so that the States can meet the Clean Air Act's 
requirements for demonstrating attainment. After lengthy analysis and 
discussions, the 12 Northeast States and the District of Columbia, 
which participate in the Ozone Transport Commission, signed an 
agreement in 1994 that established a phased program leading to 
substantial NOx controls on major sources in that region.
    In May 1995, EPA, the 37 States in the eastern half of the United 
States, and other stakeholders, including utility and environmental 
representatives, convened the Ozone Transport Assessment Group (OTAG) 
to analyze regional ozone transport in the East. This group modeled and 
analyzed ozone pollution in the East for 2 years. In June, 1997, OTAG 
concluded that ozone is transported and that regional NOx reductions 
are effective in producing ozone benefits. OTAG recommended a range of 
utility and non-utility NOx control levels to address the ozone 
transport phenomenon. EPA proposed the NOx SIP call for regional NOx 
reductions in October 1997 , and continued to discuss regional NOx 
controls with States and the utility industry throughout the rulemaking 
process and following issuance of the final rule in September 1998.
    EPA's NOx SIP Call allowed almost 5 years from the 1998 date for 
compliance with emission reduction requirements. The NOx SIP requires 
compliance by May 1, 2003, providing 55 months between finalizing the 
rule and the compliance deadline. EPA evaluated the technical and 
economic feasibility of installing sufficient pollution controls to 
achieve the emissions reductions required by the NOx SIP call and 
concluded that even with multiple installations of SCR and SNCR at the 
same plant, the longest it would take to install all needed controls 
would be 34 months. Even if States took the full 12 months allowed to 
complete their SIPs, sources would have 43 months to comply.
    EPA also examined the impact on power plant availability and thus 
electric reliability. The Agency concluded that outages would be of 
short duration and could take place during the Spring and Fall seasons 
when electric demand is lower, and that these outages would not cause 
reliability problems. In addition, recent experience installing SCR has 
suggested shorter installation times than EPA used in its analysis and, 
therefore, the Agency believes that the analysis upon which the rule 
was based is conservative.
    EPA also provided a ``compliance supplement pool'' of NOx emission 
reduction credits that States could allocate to sources who, in good 
faith, needed more time to achieve compliance with the control 
requirements. This pool of credits would enable the industry to delay 
up to one-third of the control technology installations if unforeseen 
problems should occur in obtaining and installing control equipment.
    On March 3, 2000, the U.S. Court of Appeals for the District Of 
Columbia Circuit issued a decision largely upholding the NOx SIP call. 
EPA is analyzing the effects of that decision.

    Question 5. Although strong enforcement is one component of making 
sure we achieve our air quality goals, there are a lot of good 
corporate citizens that want to comply with their environmental 
obligations, but can't always determine what they are supposed to do. 
Please describe EPA's efforts to help small businesses and others 
comply with the Act.
    Response.

Office of Air and Radiation Activities
    The CAA required States to develop a Small Business Stationary 
Source Technical and Environmental Compliance Assistance Program to aid 
small businesses impacted by air regulations. This program:

      Is funded by permit fees;
      Directly reaches more than 1,000,000 small businesses a 
year through: toll-free hotlines; fact sheets; brochures; seminars and 
meetings; websites; and
      Has resulted in more than 14,000 onsite consultations 
conducted each year.

    The EPA provides information and support to the State Small 
Business Assistance Programs to assist in their compliance assistance 
activities; small businesses can also access this information directly 
through:

      the EPA Small Business Assistance Program website, which 
includes: State and EPA contact listings; Small business materials and 
programs developed by States and EPA; Links to other EPA and State 
sites; ``Plain-English'' guidance materials to explain new air 
regulations, such as guidebooks on the standards for architectural 
coatings and wood furniture manufacturing.
      Satellite downlink seminars to educate small businesses 
on new air regulations (five industry-specific seminars have been held 
since 1994 reaching an average of approximately 2,000 participants 
each).

Office of Enforcement and Compliance Assurance (OECA) Activities

    EPA reorganized its enforcement and compliance programs in June 
1994. This reorganization was based on the principle that EPA needed to 
complement its enforcement program with innovative new tools to better 
protect public health and the environment by improving compliance with 
environmental laws. OECA continues to develop new approaches to 
compliance assistance and incentives policies.
    EPA is committed to broadening its compliance assistance programs 
as a result of a recent mid-course review of our program. As stated in 
its recently released ``Action Plan for Innovation,'' EPA is committed 
to expanding the use of integrated strategies that combine compliance 
assistance, compliance incentives, compliance monitoring, and 
enforcement activities. EPA's experience has shown that this approach 
can be very effective in addressing significant environmental risks.

Compliance Assistance

    EPA's compliance assistance program--a complement to EPA's strong 
base enforcement program--is directed toward the special needs of small 
businesses, small communities, and local governments. In fiscal year 
1999, compliance assistance activities and tools--seminars, onsite 
assistance, mailings, and handouts--reached approximately 330,000 
entities.
    Compliance Assistance Centers--Four new ``on line'' National 
Compliance Assistance Centers were opened for the paints and coatings, 
transportation, and small and medium sized chemical manufacturing 
sectors, and local governments, bringing the total number to nine 
centers in operation by the end of fiscal year 1999. These Internet-
based centers provide compliance information and pollution prevention 
techniques for certain industry sectors, such as paints and coatings, 
metal finishers, and automotive. Currently the centers are being 
visited over 700 times a day.
    Preliminary results from a survey of users of OECA's GreenLink 
Compliance Assistance Center, a web-based center for auto shops, show 
that compliance improves when facilities are given assistance. The 
results show that over a 2-year period, the number of facilities in 
substantial compliance jumped from 25 percent to 51 percent.
    Sector Notebooks--EPA to date has developed 30 sector notebooks for 
major industries. These sector notebooks provide information on the 
regulatory requirements and pollution prevention approaches needed to 
maintain and enhance compliance. To date over 450,000 notebooks have 
been distributed, and they remain one of OECA's most popular products.
    Regional Compliance Assistance Activities--All regions have 
compliance assistance activities and identified national priority 
areas. In addition, EPA's regions work with States to identify other 
regional or State-specific compliance assistance priorities.
    Region I Compliance Assistance for Printers: In Region One, 
printing continued to be a compliance assistance priority. A Fit To 
Print guide was sent to over 1400 printers throughout the Region. Of 
those who responded to an evaluation of the guide, 70 percent said that 
they had undertaken ``improved environmental practices'' such as 
equipment changes/modifications, material substitution, recycling, 
training, institution of environmental management policies or 
procedures, and improved disposal methods as a result of compliance 
assistance efforts. These facilities also said that they took action to 
apply for appropriate permits or identification numbers, or file 
reports as necessary to comply with Federal, State or local 
environmental regulations.
    Region Two Outreach Efforts to Dry Cleaners: EPA's Region II 
office, in coordination with New York State agencies, has focused 
compliance assistance efforts on dry cleaners in New York and New 
Jersey. Their outreach efforts included onsite visits and the 
distribution of easy-to-understand guides to Clean Air Act 
requirements. In addition, the Region developed a web site for 
compliance assistance information and held 8 seminars on equipment 
maintenance and new technologies for approximately 500 owners/ 
operators. This effort has resulted in a reduction of 11.9 tons of PCE 
from urban air.

Compliance Incentives

    Recognizing that effective incentives promote compliance, EPA has 
worked with State and local partners and small business groups over the 
past several years to develop policies with real incentives for 
industry and others to voluntarily identify and correct their own 
environmental violations. The Agency relies on a wide array of 
traditional and innovative compliance incentives tools, such as EPA's 
Audit Policy, to encourage companies that want to do the right thing by 
discovering and disclosing their violations.
    Self-Disclosure (Audit) Policy--EPA's Audit Policy establishes a 
system under which companies who discover environmental violations 
through a self-auditing system can receive reduced penalties if certain 
conditions are met. Since inception of the policy in 1996, 
approximately 670 companies have disclosed potential violations at over 
2700 facilities; approximately 270 companies have been granted penalty 
relief and corrected violations at over 1300 facilities.
    In fiscal year 1999, a record 260 companies had disclosed 
violations at close to 1000 facilities. EPA settled with 106 companies 
at 624 facilities, a significant increase over previous years.
    A major audit settlement with American Airlines (AMR Corporation) 
is expected to eliminate nearly 700 tons of air pollutants annually. A 
settlement with GTE, which involved 600 violations at over 300 
facilities, led to ten other telecommunications companies voluntarily 
disclosing and correcting 1,300 environmental violations at more than 
400 facilities.
    Seventy-six small businesses disclosed and corrected violations 
under the provisions of the small business self-disclosure policy, a 
sevenfold increase from the previous year.
    Compliance Audit Programs (CAP)--CAP programs are voluntary 
compliance programs, focused on a specific industry sector, which 
provide incentives to facilities to conduct environmental audits. 
Facilities which conduct an audit, and promptly disclose and correct 
any violations found, have the opportunity for waived, reduced or 
capped penalties.

    Question 6. In testimony, Professor Graham suggested taking a two-
tiered approach to Clean Air Act standards. First, a lenient and 
flexible cost-benefit analysis, one that does not require high degrees 
of precision, would be used to set the actual ambient standard. Second, 
a more stringent cost-benefit analysis would be performed to determine 
whether or not to apply controls to specific sources. What views, if 
any, do you have on such an approach?
    Response. EPA opposes the two-tier approach suggested by Professor 
Graham. This approach calls for setting air quality standards based on 
cost-benefit analysis, rather than on protection of public health. For 
three decades through 6 different Administrations and 15 Congresses 
this nation has adhered to the principle that national air quality 
standards should protect public health, including the health of 
sensitive populations like asthmatics, the elderly, and people with 
heart and lung diseases. This approach recognizes that all Americans 
deserve to breathe clean air. EPA continues to support this equitable 
goal.
    EPA of course agrees that costs are relevant in considering 
environmental policy. But costs are not--and should not--be considered 
in setting public health standards for air quality. Rather, costs are--
and should be considered in the implementation of air quality 
standards, as decisions are made concerning how to reach the health-
based goal (E.g., the relative pollution reduction contributions of 
different sources, in different geographic areas). There is substantial 
opportunity to consider costs as States, EPA and Congress decide which 
pollution sources should reduce emissions, by how much, and on what 
timetable. Moreover, the Act provides impetus for our nation to 
identify economically acceptable ways to attain clean air, through 
ingenuity and technology advances. (See responses to Senator Baucus 
questions #8 and #2.)
    Using this approach, the Clean Air Act over the past 30 years has 
been successful in achieving substantial improvements in air quality 
while the Nation also enjoyed strong economic growth and enhanced 
productivity.

    Question 7. During the hearing, the utility industry witness 
indicated that EPA has not been interested in holding a dialog with 
that industry on coordinating the regulatory requirements facing that 
industry because independent statutory provisions drive these 
requirements and EPA cannot coordinate them without a change in law. 
Please comment.
    Response. It would be inaccurate to characterize EPA as being 
reluctant to hold a dialog with industry on coordinating regulatory 
requirements with the utility industry. Indeed, EPA initiated and 
encouraged the industry and others to participate in such discussions 5 
years ago. Following consultation with industry and other stakeholders, 
EPA undertook the development of the Clean Air Power Initiative (CAPI) 
in 1995. The goal of CAPI was to develop an integrated strategy for 
achieving the goals of the Clean Air Act with respect to the power 
generating industry. EPA recognized that there are numerous CAA 
requirements that affect the power generating industry, and that they 
involve complex, costly and sometimes uncertain regulatory processes. 
EPA also recognized the economic uncertainty created by restructuring 
within the power generation industry. CAPI highlighted the multiple 
public health and environmental concerns associated with emissions from 
power generation, including ozone, fine particles, toxics, 
acidification, eutrophication, visibility/regional haze, and materials 
damage. CAPI outlined an approach that would translate health and 
environmental goals into emissions targets, employ a market-based cap 
and trade mechanism, provide more regulatory certainty, flexibility and 
cost savings, and serve to coordinate the number of regulatory 
requirements affecting the industry. At the request of industry 
participants, analyses undertaken for CAPI focused on SO2 
and NOx and did not include mercury and carbon dioxide. Several 
implementation paths were considered, such as the current path using 
separate programs and requirements to address each pollutant and 
problem, the use of cap-and-trade mechanisms, and the establishment of 
voluntary incentive programs including early reductions. Industry 
positions varied among companies, and no common position or consensus 
was reached.
    Recently, in 1998, the EPA was invited by industry representatives 
to discussions related to an integrated strategy, specifically aimed at 
integrating new source review (NSR) with other regulatory requirements. 
EPA and industry shared views of future potential regulatory scenarios 
and possibilities for integration. The discussions were constructive, 
and EPA intends to consider these discussions as it evaluates future 
changes to the NSR program.

    Question 8. At the hearing, Professor Graham stated, ``I think any 
careful environmental analysis of what is going on here would indicate 
that we are having less economic productivity in this country and we 
are having more air pollution in other countries.'' Please comment.
    Response. We would make two points:
    First, EPA believes that economic growth and a clean environment 
can go hand in hand. From 1970 to 1997, the U.S. Gross Domestic Product 
(GDP) grew by 114 percent, and population grew 31 percent. Between 1973 
and 1995, productivity (nonfarm business sector) grew at an annual rate 
of 1.4 percent. From 1995 through 1999, productivity grew at a much 
more robust 2.9 percent per year. This economic growth and enhanced 
productivity occurred while the Nation also enjoyed substantial 
improvements in air quality. In 1997, national average air quality 
levels were the best on record for the six air pollutants for which EPA 
has established national ambient air quality standards (lead, 
NO2, SO2, PM10, CO, and ozone).
    While having strong environmental protection programs, the United 
States is one of the most economically productive countries in the 
world. A list of the manufacturing output per hour for 14 countries 
from the Bureau of Labor Statistics compares the economic productivity 
of the United States relative to other developed countries. The data 
show that the average output per hour in manufacturing for the United 
States over the years 1990 to 1998 was 109.8 units of output. The 
United States was surpassed only by Sweden whose average was 114.5 
units of output and the Netherlands with 113.6 units of output. The 
average annual growth rates of productivity between 1990 and 1998 were 
also calculated for the 14 countries using the Bureau of Labor 
Statistics data and they show that U.S. productivity has grown at an 
average annual rate of 3.34 percent between 1990 and 1998. Sweden, 
France, and the Netherlands were the only three countries with higher 
average annual productivity rates for the same time period. Their 
average annual growth rates were 4.67 percent, 3.98 percent, and 3.85 
percent, respectively.
    Another commonly relied upon measure of economic growth and 
productivity is per capita gross domestic product (GDP). A list of the 
1997 per capita GDP for 204 countries from the Statistics Division of 
the United Nations Secretariat and International Labor Office compares 
the value of goods and services produced by United Statesand other 
countries. The data show that the United States had the eight highest 
per capita GDP measure in 1997 at $28,789. Only Luxembourg, Bermuda, 
Switzerland, Liechtenstein, Norway, Japan, and Denmark had higher 1997 
per capita GDP measures.
    Second, many countries like the United States have made significant 
efforts to improve their air quality to protect public health and the 
environment. For example, a number of European countries between 1980 
and 1997 saw large percentage decreases in emissions of sulfur and 
nitrogen oxides. Of course, it is also true that many countries such as 
China, India, Thailand, Russia, and Mexico have far worse air quality 
than the United States. The fact that these countries have these issues 
is not a reason to have more pollution in the United States; it is a 
call for us to work with those countries both in terms of their 
economic well being and their environmental health.
                                 ______
                                 
  Responses by Robert Perciasepe to Additional Questions from Senator 
                                 Graham
    Question 1. According to your testimony, air emissions of nitrogen 
oxides have been increasing. What is causing this trend? What do you 
believe would be the most effective steps the Federal Government could 
take to reverse this trend?
    Response. Air emissions of nitrogen oxides have increased since 
1970 due primarily to 1) increases in emissions from coal-fired power 
plants and 2) increases in emissions from certain mobile sources, 
including on-road and non-road diesel engines and light-duty trucks. 
From 1970 to 1997, U.S. Gross Domestic Product grew by 114 percent, the 
U. S. population grew by 31 percent, the number of miles traveled by 
on-road vehicles (VMT) increased by 127 percent, and from 1970 to 1998, 
electricity production increased by 136 percent. Despite these 
increases, the Nation recorded decreases in emissions of certain 
pollutants due to programs implemented under the Clean Air Act. For 
example, emissions of sulfur dioxides from coal-fired power plants 
dropped over this time period, as did emissions of volatile organic 
compounds and nitrogen oxides from passenger vehicles and many other 
sources. However, the same cannot be said for emissions of nitrogen 
oxides from power plants, diesel engines and other sources. Awareness 
of the need to control NOx from power plants and some of these other 
sources has grown over the past several years.
    Emissions of NOx result primarily from fuel combustion at high 
temperature. Fuel and biomass combustion in mobile and stationary 
sources accounts for about 95 percent of NOx emissions. As noted below, 
EPA, in partnership with State and local agencies and other 
stakeholders, have a number of programs in place as well as new 
initiatives in progress to decrease NOx emissions. Successful 
implementation of these Federal activities, together with local, State 
and regional efforts including measures in local nonattainment plans 
(e.g. vehicle inspection and maintenance programs), and strategies to 
reduce regional levels of NOx are cost-effective steps that will lead 
to important decreases in NOx emissions across the country.
Mobile Sources
    Since the 1970's EPA has required motor vehicle manufacturers to 
decrease significantly emissions of NOx from light duty on-road 
vehicles. New Tier 1 light duty vehicle requirements were phased-in 
over the 1994-96 model years. The EPA has continued to work with State 
officials, auto manufacturers, oil industry and others to develop even 
cleaner cars, including the National Low Emission Vehicles program and 
the recently announced Tier 2/sulfur program. Vehicle miles traveled 
increased 25 percent nationally during the past 10 years. Despite the 
increase in vehicle miles traveled, total on-road vehicle emissions 
have been decreasing and will continue to decline through 2020 as new, 
Tier 2 cars and light trucks replace older, more polluting cars.
    Reduction in NOx emission levels from heavy-duty vehicles is 
expected from lower tailpipe standards for engines produced after 1991 
and further reductions are expected as 1998 and 2004 model year engines 
meeting tighter emission standards are phased into use. In addition, 
the Agency will soon propose more stringent emission standards for 
diesel engines used in large trucks and buses, as well as requirements 
for low-sulfur diesel fuel. The EPA is also working to implement 
several non-road programs to decrease NOx emissions from large marine, 
aircraft, locomotive, and engines used in agriculture, construction, 
and general industrial equipment.
Stationary Sources
    To help control acid deposition, the Clean Air Act established a 
two phased program to reduce emissions of NOx from coal-fired electric 
utility generation units. Electric utility NOx emissions are expected 
to decline as the Phase II acid deposition NOx emission rate limits 
become effective.
    Further reducing utility NOx emissions using a cap-and-trade system 
is a highly cost effective way to reduce regional NOx emissions. To 
help cut ground-level ozone levels across the Eastern United States, 
EPA worked with the States to develop the NOx SIP call rule to further 
reduce NOx emissions from power plants and/or other sources in 22 
eastern States and the District of Columbia. Similar reductions are 
required in 12 States and the District of Columbia as a result of EPA's 
recent grant of petitions from eastern States under section 126 of the 
Clean Air Act.
    Continuing to implement these cost-effective programs will reverse 
the long-term trend of increases in NOx emissions; more NOx was emitted 
into the air in 1997 than in 1970. To sustain those reductions over 
time, it may be important to consider programs like those that place a 
cap or limit on total emissions.

    Question 2. Can you elaborate on the changes that you believe 
should be made to the Clean Air Act?
    Response. We are committed to working with Congress to provide a 
targeted legislative solution that maintains our air quality gains and 
allows for the reduction of MTBE, while preserving the important role 
of renewable fuels like ethanol.
    On the broader question of reauthorization of the Clean Air Act, we 
are not currently advocating changes to the Act. I am willing to work 
with the committee to review the Act and consider where it might 
benefit from improvements, as I stated during the hearing. As we go 
through this hearing process together, we will have a better feel for 
whether reopening the act would be more beneficial or disruptive on the 
whole.
    The following are some ideas that have been raised and would be 
worth examining during the hearing process, which we understand is to 
take place over the next couple of years:
    Providing clearer authority for EPA to develop and directly 
implement multi-State solutions, such as cap-and-trade programs, for 
regional air pollution problems caused by any pollutant.
    Providing additional authority for EPA to encourage States and 
industry to take actions that reduce risks from indoor air pollution. 
(See response to Sen. Lieberman question #4.)

    Question 3. Some have argued that those older fossil fuel power 
plants that are not required to meet the new source performance 
standards will continue to operate indefinitely because the exemption 
in effect, has created an economic advantage. Do you believe emissions 
of nitrogen oxide would be more effectively and efficiently reduced by 
phasing out this loophole or by allowing a cap and trade program?
    Response. We are willing to discuss approaches to eliminating this 
``grandfathering'' approach with a more effective solution to cap 
emissions and allow trading. A cap and trade program allows companies 
to make cost-effective choices on operating their units and installing 
controls while still complying with the emission reduction requirement.
    The cap would ensure that the desired environmental result would be 
achieved, and trading would allow each facility to pursue the lowest 
cost approach for its system. When designed and implemented properly, 
cap and trade programs offer many advantages over traditional command 
and control counterparts (such as a requirement that all power plants 
meet a specific performance standard) including (1) reduced cost of 
compliance, (2) creation of incentives for early reductions, (3) 
creation of incentives for emissions reductions beyond those required 
by regulations, (4) promotion of innovation, and (5) increased 
flexibility. A market system that employs a fixed tonnage limitation 
for a group of sources provides great certainty that a specified level 
of emissions will be attained and maintained since a predetermined 
level of reductions is ensured. A cap and trade program is a highly 
effective approach for ensuring that industry has the flexibility to 
grow while still managing the emissions impact of growth. With respect 
to transport of pollution, an emissions cap also provides the greatest 
assurance to downwind States that emissions from upwind States will be 
effectively managed over time.
                               __________
Statement of Allison Kerester, Mickey Leland National Urban Air Toxics 
                            Research Center
Introduction
    The Mickey Leland National Urban Air Toxics Research Center (Leland 
Center) was established by Congress under Title III, Section 301(p) of 
the 1990 Clean Air Act Amendments. Congress created the Leland Center 
as a non-profit, public/private research organization to sponsor 
research on the potential human health impacts of the 188 listed air 
toxics. The Leland Center is governed by a nine-member Board of 
Directors, appointed by Congress and the President. A thirteen-member 
Scientific Advisory Panel, composed of nationally recognized scientists 
and physicians, establishes the Leland Center's peer-reviewed research 
program. The Leland Center's mission is to contribute meaningful and 
relevant data to the scientific literature on the potential human 
health effects of air toxics. We view this contribution as a 
fundamental component in the national effort to develop cost-effective 
and balanced regulations to protect the public health from the 
potential risks of air toxics.
    After exploring the most critical public health aspects of air 
toxics risks, the Leland Center's Board of Directors identified two 
fundamental research data gaps: (1) the determination of the actual 
human exposures to air toxics in urban environments, and (2) the non-
cancer health effects of such exposures. The Leland Center chose to 
pursue personal exposure research. We were the first research 
institution to develop a research program on personal exposures to air 
toxics in urban populations.
Exposure
    Traditionally, ambient air concentrations of air toxics have been 
equated with adverse health effects. Under this approach, the larger 
the airborne concentration, the larger the potential human health risk. 
However, it is actual exposure, and not air concentrations, that is the 
critical component needed to determine potential adverse health effects 
from a pollutant emission into the environment. High airborne 
concentrations of air pollutants in an area without people means there 
is no exposure. Without exposure there is no human health risk.
    In its March 1998 report Research Priorities for Airborne 
Particulate Matter-Volume I, the National Research Council states that 
the relationship among outdoor, indoor, and personal exposure is a 
fundamental factor in determining potential human health effects. 
Exposure is one of the two major elements (the other being the 
determination of the most biologically active constituents (of a 
pollutant or particle) on which other research, such as epidemiological 
studies, should be based. The National Research Council named exposure 
research as one of the 10 most critical research areas. Only with 
exposure information can the potential public health impacts be 
calculated.
Exposure Defined
    Exposure is the contact of a chemical, biological or physical agent 
at the boundary of the body over a specified time period. People are 
exposed to chemicals through inhalation, ingested through food or 
absorbed through the skin. People are exposed to air pollutants 
primarily through inhalation. However, deposition onto soil, food, and 
water, can result in other exposure routes. Actual human exposure is a 
function of outdoor sources, indoor sources, and human activity 
patterns. (NRC, 1998). Thus, what people are actually exposed to is a 
result of where they spend their time and what air pollutants are 
present in those areas. People do not spend their time in just one 
location, but rather move through a series of locations (or 
microenvironments) such as the home, car, office, outside, throughout 
the day.
Exposure Assessment
    Exposure assessment is the science of determining what people are 
exposed to and how they come into contact with various contaminants. 
Exposures can be estimated by a number of methods. See Attachment 1. 
The most accurate measurements are obtained by measuring people 
directly, such as through the use of personal monitors, breath, urine, 
and blood samples. Exposure assessments are used in epidemiology 
studies, risk assessments, analysis of trends, and risk management 
decisions.
Exposure Sources
    Most individuals in the United States spend the majority of their 
time indoors. See Attachment 2. In some cities, such as Houston, people 
spend approximately 90 percent of their time indoors. Outdoor 
pollutants may be brought inside through open windows, ventilation 
systems, food, water, tracked-in soil, and consumer products. These 
pollutants may even undergo chemical reactions once inside a building 
or home producing yet other pollutants. While ambient air toxics can 
penetrate into homes, offices, and cars, many chemicals, classified as 
air toxics under the Clean Air Act, are also emitted directly into the 
indoor air from consumer and cleaning products and building materials. 
Carpet, paint, and air deodorizers may all release chemicals into the 
indoor environment. Even taking a hot shower, washing dishes or clothes 
in hot water, may release chemicals, such as chloroform. (Wallace et 
al., 1993).
    In addition, some emissions near a person's face can contribute 
significant concentrations to personal exposure, while contributing a 
negligible amount to ambient concentrations. Wearing recently dry-
cleaned clothing is an example. (Wallace et al., 1993). Smoking is 
another example. Smoking accounts for the largest percentage of 
personal exposure to benzene, yet the activity of smoking releases 
little benzene into the surrounding air.
    Thus, when the contribution of outdoor sources is minimal compared 
to indoor sources or the air immediately surrounding an individual, 
ambient air emissions are not a good indicator of personal exposure. It 
is therefore important to determine indoor air concentrations, the 
sources of those concentrations and the relative contribution from 
outdoor, indoor and personal sources in determining what people are 
really exposed to in their daily lives.
Personal Exposure Studies
    Several studies have been carried out to assess the relationship 
among outdoor, indoor, and personal air to determine the sources of the 
exposure to air toxics. The most comprehensive U.S. study to date has 
been the Total Exposure Assessment Methodology (TEAM) study. This study 
was conducted in phases from 1980-1987 (e.g., Wallace et al., 1987, 
1988). In addition, Phase I of the National Human Exposure Assessment 
Survey (NHEXAS), conducted from 1995-1997 (Pellizzari et al., 1995, 
Sexton et al., 1995) also examined this relationship. The major purpose 
of the TEAM study was to measure the personal exposures to select 
chemicals in urban populations in several U.S. cities. One phase of the 
TEAM study examined personal exposures of 600 people to a number of 
toxic or carcinogenic chemicals in the air and drinking water. One 
central hypothesis of the TEAM study was that emissions from major 
industrial sources in urban areas would be the primary source of the 
personal exposures to volatile organic compounds of study participants 
who lived in these areas. In addition, it was further surmised that 
these industrial sources would be the major source of indoor air 
pollutant concentrations.
    However, one of the primary findings of the TEAM study was that for 
air toxics, indoor sources were the primary contributor to indoor air 
concentrations and to personal exposures for the majority of air toxics 
measured. See Attachment 3. Researchers determined that in many 
instances, the contribution of outdoor air toxics concentrations to 
personal exposure was negligible. The TEAM study concluded that it was 
sources other than outdoor air, that were controlling indoor and 
personal air concentrations.
    The NHEXAS study was designed to determine population-base 
exposures to select air toxics, PM2.5 and pesticides in 
urban, suburban and rural settings. NHEXAS pilot study results were 
similar to that of the TEAM Study. (The full NHEXAS study has not yet 
been initiated.)
    There are instances where outdoor sources may be primary source. If 
compounds have minimal or no indoor sources, then penetration from 
outside source contaminants can be the dominant source. For example, 
carbon tetrachloride has been banned from use in consumer products, but 
has a long residence time in the ambient air. Thus, outdoor air is the 
source for the indoor air levels and personal exposure to this 
compound. (Baek, 1997).
    Outdoor sources may be a significant contributor to indoor and 
personal exposures in homes immediately adjacent to ambient sources, 
such as factories, parking garages, heavily trafficked streets or dry 
cleaners. One current study, The Relationship Among Indoor, Outdoor, 
and Personal Air (RIOPA) Study, being conducted by the Environmental 
and Occupational Health Sciences Institute, is evaluating this 
hypothesis. The RIOPA study is examining this relationship in 100 homes 
in three urban areas (Houston, Texas; Los Angeles, California; and 
Elizabeth, New Jersey). All of these homes are near major outdoor 
sources of air pollutants or in heavily trafficked areas. In these 
homes, researchers are placing monitors outside and inside the home to 
measure concentrations of select compounds. In addition, participants 
will wear a personal monitor for 48 hours and keep a diary of their 
activities during this time period. The RIOPA study is measuring select 
VOC, aldehydes, and PM2.5 in a 3-year study. Some of the 
pilot study results are attached as Attachment 4. This study will 
provide specific information on the impact of outdoor sources of air 
toxics to personal exposures for residents living close to ambient 
source concentrations.
Future Research Directions
    Only by understanding the relationship among outdoor, indoor and 
personal exposures can public health impacts be assessed. Additional 
research on indoor air, including indoor air chemistry (what happens to 
air pollutants in a home or building) and the sources of such 
concentrations needs to be examined. Additional research on the 
relationship among outdoor, indoor and personal exposure needs to be 
conducted. While an exposure research program exists for particulate 
matter, there is no such overall integrated program for the 188 air 
toxics listed in Section 112 of the Act.
    Exposure is the link between ambient air concentrations and public 
health impacts. A dialog is needed about the role of ambient air toxics 
monitoring in exposure research along with the role of monitoring 
microenvironments and ``hot spots'' and their relationship to personal 
exposure.
Conclusion
    It is personal exposure to air pollutants, and not air 
concentration that is the critical component in assessing the public 
health impacts from air pollutants. Science has now established that 
indoor air pollutants can be a major contributor to a person's overall 
exposure to air pollutants. In addition, the findings from these 
studies indicate that the same air pollutants subject to regulation 
under the Clean Air Act are often found at much higher levels indoors. 
The Clean Air Act Amendments of 1990 rely solely on the assumption that 
outdoor levels are determinative of an individual's exposure and hence 
risk. The Act does not address the contribution of indoor sources of 
air pollution or the differences between indoor and outdoor quality.
    Absent information about personal exposures, the real public health 
risk of air toxics cannot be accurately assessed. Merely reducing the 
ambient emission levels may not result in improved public health. By 
focusing on exposure, we can determine where the greatest risk to 
public health lie and tailor the solution to correct the problem. The 
Leland Center will continue to focus our research on addressing the 
critical area of exposure, thus allowing for a more cost-effective 
approach to protecting public health under the Clean Air Act.
                              Attachments

                               references
    Baek, S-O, Kim, Y-S, Perry, R (1997). Indoor air quality in homes, 
offices and restaurants in Korean urban areas-indoor/outdoor 
relationships. Atmospheric Environment 31:529-544.
    National Research Council (1998). Research priorities for airborne 
particulate matter volume I-immediate priorities and a long-range 
research portfolio. National Academy Press. March 1998
    Ott, W.R., Roberts J.W. (1998). Everyday exposure to toxic 
pollutants. Scientific American. February 1998
    Pellizzari, E, Lioy, P, Quackenboss, J, Whitmore, R, Clayton, A, 
Freeman, N, Waldman, J, Thomas, C, Rodes, C, Wilcosky, T (1995). 
Population-based exposure measurements in EPA region 5: A Phase I field 
study in support of the National Human Exposure Assessment Survey. 
Journal of Exposure Analysis and Environmental Epidemiology 5:327-358.
    Sexton, K, Kleffman, DE, Callahan, MA (1995). An introduction to 
the National Human Exposure Assessment Survey (NHEXAS) and related 
Phase I field studies. Journal of Exposure Analysis and Environmental 
Epidemiology 5:229-232.
    Wallace, L (1991). Comparison of risks from outdoor and indoor 
exposure to toxic chemicals. Environmental Health Perspectives 95:7-13.
    Wallace, L (1996). Indoor particles: A view. Journal of Air & Waste 
Management Association 46:98-126.
    Wallace, LA, Pellizarri, ED, Hartwell, TD, R, W, Zelon, H, Peritt, 
R, Sheldon, L (1988). The California TEAM study: breath concentrations 
and personal exposure to 26 volatile compounds in air and drinking 
water of 188 residents of Los Angeles, Antioch, and Pittsburgh, CA. 
Atmospheric Environment 22:2141-2163.
    Wallace, LA, Pellizzari, ED, Hartwell, TD, Sparacino, C, Whitmore, 
R, Sheldon, L, Zelo, H, Perritt, R (1987). The TEAM study: Personal 
exposures to toxic substances in air, drinking water and breath of 400 
residents of New Jersey, North Carolina, and North Dakota. 
Environmental Research 43:290-307.
    Weisel, C. The influence of ambient air sources on exposure to air 
toxics: results from the RIOPA pilot. Prepared for the Air Toxics 
Session of the 1999 American Bar Association Meeting.
                                 ______
                                 
  Responses by Allison Kerester to Additional Questions from Senator 
                                 Baucus
    Question 1. How would the CAA need to be adjusted, if at all, to 
ensure that regulatory actions are based on exposure? Please provide 
any specific recommendations and comment on the data collection and 
information management system and resources that would be necessary to 
more comprehensively incorporate exposure considerations in regulation 
development.
    Response. Regulatory actions are based on risk. Risk is a function 
of both exposure and hazard. Exposure is the link between ambient 
concentrations and public health impacts. In considering exposure, the 
relationship among outdoor, indoor and personal exposures needs to be 
assessed, along with the sources of those exposures. Models that equate 
ambient levels of air toxics with exposure may not accurately 
characterize exposures to these substances and thus, may not result in 
regulatory decisions that would produce real health benefits. 
Consideration of personal exposure and the role of indoor air tonics in 
developing criteria documents, exposure models, in EPA's, 
implementation of the Agency's Integrated Urban Air Toxics Strategy and 
Residual Risk program, and in the design of ambient monitoring networks 
would help ensure that the potential health risks of air pollutants are 
more adequately characterized.

    Question 2. You indicated that it might be possible to reduce 
indoor air pollution exposure by changing the products or systems used 
in the home. What do you consider to be the products or systems in 
homes of the highest concern relative to conducting more research on 
their human health effects? What role, if any, would be appropriate for 
the Federal Government in addressing indoor air exposure?
    Response. Only by understanding the relationship among outdoor, 
indoor, and personal exposures can the public health impacts of air 
pollutants be assessed. Additional research on indoor air, including 
indoor air chemistry, and the sources of such air pollutants is needed. 
In addition, continued research on the relationship among outdoor, 
indoor, and personal exposures, the sources of those exposures, and 
whether those exposures actually result in adverse health effects needs 
to be conducted before such recommendations could be made as to 
changing products or systems used in the home. The Federal Government 
can foster this needed research.

    Question 3. You mentioned that studies show that Americans spend a 
majority of their time indoors. Is there evidence that certain 
populations--children, construction workers, athletes--spend 
considerable more time outdoors that the ``average'' American? Is there 
evidence of socioeconomic differences in time spend (sic) outdoors?
    Response. The study indicating that the Americans spend the 
majority of their time inside is the ``National Activity Pattern 
Survey'' conducted by the Environmental Protection Agency. EPA/600/R-
96/148. This study broke out the activity pattern by age, starting with 
the 12-17 years old category. Children younger than 12 were not 
included. In addition, the California Air Resources Board (CARB) funded 
a similar study, with comparable results (``Measurement of Breathing 
Rate and Volume in Routinely Performed Daily Activities'',
    Contract No. AO33-205, June 1993). CARB also conducted a separate 
activity pattern study of children under 12. (``Study of Children's 
Activity Patterns'' Final Report, Contract No. A733-149, September 
1991) However, CARB has not conducted much analysis by occupation, 
because of the sample size limitations. Other studies have examined 
construction workers and athletes, more from an activity level 
perspective. Some papers by Samoo et al has been published on 
construction workers .
    Question 4. You criticize the CAA for equating air concentrations 
with adverse health effects, suggesting that EPA does not consider 
exposure. In addition to epidemiological information, toxicological 
information is critically important to relating concentrations with 
adverse effects. And, inhalation studies are already a basic component 
of EPA's scientific assessment of air pollution impacts. Please 
comment.
    Response. Traditionally, the extent to which the general population 
is exposed to air tonics has been determined by monitoring programs 
that utilized concentrations of the pollutant as determined by a fixed 
site ambient air quality monitor. Epidemiological studies have used 
this information to assess the potential health risks from air toxics 
exposures to the general population. However, a number of studies 
involving measurements of personal exposures to air tonics have 
suggested that the correlation between outdoor concentrations and 
personal exposures to these pollutants may not be adequately determined 
by centrally located fixed site ambient monitors. EPA's current 
exposure models are based on ambient concentration levels, not on 
personal exposure data. In addition, these models have not addressed 
the relationship among outdoor and indoor air quality in contributing 
to personal exposures to air toxics. Thus, although EPA considers 
``exposure'' in determining risk, the Agency's current approach may not 
accurately characterize the real risk of air toxics and other air 
pollutants to urban populations.

    Question 4. Do you agree with Dr. Graham's testimony that the issue 
of whether breathing air pollution is harmful is a ``spurious'' 
technical debate, which is unlikely to be resolved conclusively at the 
low levels of air pollution now found in the USA due to the limitations 
of modern scientific methods of toxicology and epidemiology?
    Response. The issue of whether breathing air pollution is a 
``spurious'' technical debate is best answered by Congress itself and 
EPA. Science cannot always resolve issues with 100 percent certainty. 
However, research continues to indicate a link between air pollution 
and adverse health effects. Ongoing research, such as the personal 
exposure research, will help provide useful data about the exact air 
toxics urban populations are exposed to and the sources of those 
exposures. This information, will in turn, provide a basis for a more 
accurate assessment of the potential health effects of such exposures. 
Decisions makers must determine what is the necessary level of 
scientific certainty on which to base regulatory actions.
                                 ______
                                 
   Response by Allison Kerester to Additional Question from Senator 
                                Moynihan
    Question: You state, on average, 90 percent of a person's time is 
spent indoors. I agree that we need to improve the quality of indoor 
air and that this statistic is compelling evidence of the urgency of 
this issue. Do you also agree that since the air that we breathe--
indoor and outdoor--originates outside, efforts to improve ambient air 
quality are also critical to improving human health?
    Response. Yes, I agree that efforts should be made to improve 
ambient air quality. While several scientific studies suggest that the 
primary source of hazardous air pollutants (the 188 substances listed 
in Section 112 of the Clean Air Act Amendments of 1990), may be from 
indoor sources, the primary source for other air pollutants, such as 
ozone and particulate matter, appears to be the ambient air. Thus' it 
is important to understand the relationship among outdoor, indoor, and 
personal exposures to air pollutants and the sources of the exposures. 
Such information will help produce more accurate air pollutant risk 
assessments.
                               __________
   Statement of John D. Graham, Director, Center for Risk Analysis, 
                    Harvard School of Public Health
    My name is John Graham. I am Professor of Policy and Decision 
Sciences at the Harvard School of Public Health where I teach graduate 
courses on risk assessment, risk communication, and cost-benefit 
analysis. I am also the founding Director of the Harvard Center for 
Risk Analysis, a mission-oriented Center dedicated to promoting a more 
reasoned public response to health safety, and environmental hazards. 
Our Center applies formal analytic tools to the following four issues: 
environmental health, automotive safety, medical technology, and food 
safety. I am the author or co-author of seven books and over 100 
articles published in peer-reviewed scientific journals. In 1995-96 I 
served as elected President of the intonational Society for Risk 
Analysis, a membership organization of 2,500 scientists and engineers 
dedicated to applying formal analytic tools to the resolution of risk 
issues. I am offering personal testimony today and thus my remarks do 
not necessarily represent the viewpoints of the University or the 
Society for Risk Analysis.
    It was about 10 years ago that I first testified before this 
Committee on President Bush's proposal to amend the Clean Air Act, a 
proposal that Congress expanded into what became the 1990 amendments to 
the Clean Air Act. We have learned a great deal during the past decade. 
The Clean Air Act has produced more regulations, more public health and 
economic benefits, and more costs to American businesses and households 
than any other Federal program of environmental regulation. Thus, the 
stakes in the reauthorization debate are large.
    Let me begin with some good news.
    First, the total estimated benefits of the 1990 amendments appear 
to be greater than the total estimated costs of the amendments (EPA, 
1999), at least if we are to believe EPA estimates of benefits and 
costs (see cautionary remarks below). But some parts of the 1990 
Amendments are better ``buys'' than others (Smith and Ross, 1999). 
There are a significant number of clean air regulations that were 
adopted without a careful analysis of their risks, costs, and benefits 
(e.g., some of the MACT standards under Title III of the 1990 
amendments). In many cases EPA estimates regulatory costs but does not 
attempt to quantify benefits in public health or economic terms (see, 
for examples EPA's regulatory impact analyses (RIAs) of the rules 
governing medical waste incineration and vehicle inspection and 
maintenance). Moreover, one study of 25 clean air rules adopted from 
1990 to 1995 found that only ten of these rules would pass a strict 
cost-benefit test (Hahn, 1995). Thus, EPA's commitment to cost-benefit 
analysis varies enormously from rule to rule and the influence of cost-
benefit analysis on EPA decisionmaking is uneven (Morgenstern, 1997, 
Hahn, 1999).
    Second, the ``grand experiment'' with incentive-based programs 
under the Act, particularly the sulphur-trading programs enacted to 
address acid rain, appear to have been a qualified success (Staving, 
1998). Evaluations suggest that this program has been successful 
(compared to conventional ``command-and-control'' regulation) both 
economically and environmentally. A case is now being made to expand 
this approach to trading of nitrogen oxides as well as sulphur oxides.
    Third, as predicted (Graham 1985), EPA has made greater progress in 
regulation of air toxics through a technology-based approach that 
targets industry sectors (``source categories'') rather than by 
determining acceptable risk on a pollutant-by-pollutant basis. Yet 
measuring success by the number of industries regulated is not very 
meaningful to public health. The big unknown in the toxics arena is 
whether the public health benefits of reduced human exposures to air 
toxics have been significant enough to justify the significant 
expenditure of agency and industrial resources that has taken place.
    In my testimony today, I will focus on the role of risk analysis 
and cost-benefit analysis under the Clean Air Act. I will identify five 
problem areas that I believe are worthy of future Committee 
investigation as you develop legislation to reauthorize the Clean Air 
Act. In some cases I have only been able to identify a problem while in 
other cases I go further and recommend some possible solutions for your 
consideration.
    Problem 1: Some provisions of the clean air act are dysfunctional 
because they do not require or permit EPA to weigh the risks, costs, 
and benefits of alternative policies.
    When multi-billion dollar rulemaking decisions are made, it is 
inevitable that regulators will consider the consequences of their 
actions as well as the reasonableness of the relationship between 
risks, benefits and costs. Yet some provisions of the Clean Air Act 
erect a legal fiction that regulators may not consider risk, cost and 
benefit when devising regulations. This legal fiction is dysfunctional 
because it (1) reduces political accountability for value judgments and 
political choices, (2) hides from public scrutiny claims that are made 
about risks, benefits and costs (since such claims are driven 
``underground'' in the course of regulatory deliberations), (3) 
undermines EPA's credibility in the regulated community and the public 
because the agency is portrayed as being disinterested in science and 
economics, and (4) shifts public debate from risk-benefit and cost-
benefit issues (which is where the debate should be) to spurious 
technical debates about whether breathing air pollution has been proven 
to be harmful (the ``causation'' issue, which is unlikely to be 
resolved conclusively at the low levels of air pollution now found in 
the USA due to the limitations of modern scientific methods of 
toxicology and epidemiology). Let me provide a concrete example of how 
legal restrictions in the Clean Air Act create a perverse public debate 
about clean air policy.
    The primary ambient air quality standards for ubiquitous 
(``criteria'') air pollutants are to be set at levels that are safe in 
the sense that such levels protect the public health with an adequate 
margin of safety. Yet such scientific information (alone) does not 
typically provide an intelligible basis for He setting of safe (yet 
non-zero) amounts of air pollution. Human and animal studies often find 
no discernible threshold in the dose-response function, particularly as 
more susceptible subpopulations are identified and more subtle health 
effects are considered to be ``adverse'' within the meaning of the 
Clean Air Act. The only concentration of some air pollutants (e.g. fine 
particles and lead) that is really safe to breathe appears to be zero, 
yet it is not economically realistic or appropriate for EPA to set air 
pollution standards at zero. Thus, EPA is forced to manufacture 
spurious rationales for non-zero air quality a form of dishonest 
behavior that contributes to the atmosphere of arbitrariness, mistrust, 
and adversarialism (including litigation) that has characterized public 
debates about air quality standards.
    The solution to this predicament is not necessarily to apply a 
strict cost-benefit test to any new or modified primary air quality 
standard. Cost-benefit analysis of primary air quality standards is 
particularly speculative because air quality standards, which need to 
be based primarily on public health data, are devised before the agency 
has had the opportunity to study the industrial economy and collect the 
kinds of engineering and cost information that identify cost-effective 
ways to prevent or control pollution. When EPA or the States propose 
emissions rules for specific industries or sources, it is feasible to 
gather more precise cost and effectiveness information, thereby 
supporting a more rigorous analysis of risks, benefits and costs.
    Although it is feasible for EPA to make crude estimates of risk, 
benefit, and cost when a new or modified primary air quality standard 
is proposed, the cost-benefit test for decisionmaking at this stage 
should be a more lenient one than is applied to Federal or State 
emission standards that apply to particular technologies or industries. 
For example, Congress might permit or require EPA to consider whether 
the incremental costs of a tighter air quality standard are grossly 
disproportionate to the anticipated benefits of the proposed standard. 
Under this rather lenient cost-benefit test, EPA's recent fine particle 
standard would have been quite defensible, though the proposed 
modification to the ozone (smog) standard would have been vulnerable to 
legal challenge.
    Problem 2: Although clean air regulations are intended to reduce 
risks to public health, they sometimes cause unintended dangers to 
public health because the risks of regulation were not analyzed 
carefully by Congress and EPA when policies were made.
    Risk-tradeoff analysis (sometimes called risk-risk analysis or 
risk-benefit analysis) is often easier than cost-benefit analysis 
because the units of measurement in the analysis are physical rather 
than monetary quantities. For example, the units used in risk-tradeoff 
analysis might include the net number of lives saved, life years saved, 
quality-adjusted life years saved, or even the net change in the amount 
of pollution emitted into the environment, with the mass emissions of 
each pollutant Freighted by their relative toxicity and/or exposure 
potential. In risk-tradeoff analysis, the public health benefits and 
risks of a new regulation do not have to be expressed in dollar units, 
one of the more complicated and controversial steps in economic 
evaluation. In order to avoid perverse situations where a well-intended 
clean air regulation kills more people than it saves, Congress should 
consider an amendment to the Clean Air Act Cat compels a risk-tradeoff 
analysis of future regulations (Graham and Wiener, 1995).
    Experience the 1990 amendments illustrates trait Congress and EPA 
have not been as vigilant in conducting risk-benefit analysis as 
perhaps they should have been. Here are two examples:
    First, EPA's new air quality standards were overturned by a divided 
appeals court that employed some novel constitutional arguments. Yet 
less attention has been devoted to the fact that EPA's revised smog 
standard was overturned by a unanimous court because EPA did not 
perforce a risk-benefit analysis of the proposal (computing the health 
benefits of smog reduction to the health risks of greater ultraviolet 
radiation exposure that would result from diminished smog 
concentrations in the atmosphere). Public exposure to ultraviolet 
radiation is a serious public health concern since such exposures are 
associated with skin cancer, cataracts, and other adverse health 
effects. EPA contests whether the health risks caused by regulations 
are legally relevant under the language of the Clean Air Act but 
Congress should take a broad view of public health protection and 
require EPA to do ``More good than harm.'' to public health in each 
regulation (Warren and Marchant, 1993).
    Second, Congress and EPA mandated an increase in the oxygenated 
content of gasoline without performing a careful risk-benefit analysis 
of the most important chemical, MTBE, that has been used to comply with 
the provisions in the Clean Air Act More oxygen content in gasoline did 
promise air quality benefits: less carbon monoxide and toxic air 
pollution. Yet the risks of the rule were not considered carefully. Now 
that MTBE, a rather persistent chemical with low acute toxicity, has 
been discovered in both surface and groundwater (e.g., near leaking 
underground storage tanks), questions have been raised about whether 
MTBE exposures pose a risk to public health. A recent EPA stakeholder 
panel chaired by Mr. Dan Greenbaum of the Health Effects Institute 
recommended that EPA repeal or modify the mandate of oxygenated fuels, 
yet a careful risk-benefit analysis of the issue has still not been 
conducted by EPA.
    Asking Congress and EPA to perform risk-benefit analysis is 
equivalent to asking for adherence to the Hippocratic oath in medicine: 
We should be vigilant about informing the public of the health risks 
and health benefits of clean air regulations, even in cases where some 
degree of risk is judged to be acceptable in light of the benefits.
    Problem 3: Congress and EPA sometimes pursue clean air goals 
without taking account of other national objectives such as energy 
policy and international trade policy.
    Although the public health objectives of the Clean Air Act are 
compelling, they do need to be pursued with sensitivity to other 
national policy objectives such as energy policy and international 
trade policy. Two recent examples of policy conflict have caught my 
attention. .
    First, a recent trip to Europe, I discovered an interesting 
difference between European and American policies. I was surprised to 
learn that a large and growing fraction of passenger vehicles (cars and 
light Uncles as well as heavy trucks and buses) in Europe are powered 
by diesel engines. European vehicle manufacturers are also making major 
investments in advanced diesel engine technology that will reduce 
emissions of pollutants such as particulate matter and nitrogen 
dioxide. Yet the European Union regulations for nitrogen dioxide 
emissions may prove to be less stringent than California and USEPA 
regulations for an interesting reason. Europe is developing the diesel 
engine as an important element in the strategy to conserve energy and 
reduce carbon dioxide emissions, as required by the Kyoto treaty on 
global climate protection. Modern diesel engines are significantly more 
fuel efficient than gasoline-powered engines and therefore offer 
significant promise as a strategy to control carbon dioxide pollution. 
Vehicle fuel efficiency in Europe also offers significant economic 
benefits to consumers, since fuel prices in Europe are $3 to $5 per 
gallon and diesel fuel is priced louver than conventional gasoline.
    In the United States, domestic vehicle manufacturers are also under 
political pressure to improve the energy efficiency of engines, but 
here we have very low fuel prices and consumers have shown a remarkable 
degree of interest in sport-utility vehicles (large and small), jeeps, 
and light trucks. There has been some interest in the use of diesel 
engine technology to power large sport-utility vehicles (in order to 
increase fuel efficiency) but the strict posture clean air regulators 
in the California and USEPA are discouraging use of the diesel in favor 
of less energy-efficient alternatives such as compressed natural gas 
and conventional gasoline. I have recently persuaded one of my doctoral 
students to conduct a risk-benefit analysis of the modern diesel engine 
because European and American policies toward this technology arc 
currently so divergent.
    Second. EPA's toxic air pollution star cards applied to the coke 
production industry (so-called MACT and LAER standards) were designed 
to be ``technology forcing'' but have appeared to have had some 
unintended consequences in international trade. Coke is vital 
ingredient in the steelmaking process. Making coke from coal is a dirty 
process, though the industry has made significant progress in reducing 
pollution from coke batteries. The 1990 amendments to the Clean Air Act 
were designed to make greater progress by requiring 0 percent door 
emissions from any new coke plants built with conventional byproduct 
recovery technology. The theory was that this de facto prohibition on 
the traditional method of making coke would stimulate development of 
new and cleaner methods of making coke in the USA.
    Preliminary experience with the 1990 amendments suggests that coke 
and steel makers have not always responded to the Act by making major 
new investments in clean coke-making technology (Graham and Hartwell, 
1997). Although a few domestic firms have made major investments in 
different coke-making technologies, a number of integrated steel makers 
are instead phasing out their coke-making facilities and purchasing 
coke on the open market. Some steelmakers are making arrangements to 
import coke from a variety of countries in Eastern Europe and Asia 
(e.g. China), where more coke plants are being built with conventional 
technology and where batteries are operated with greater air emissions 
gases end particles than is typical of facilities in the United States. 
I recommend that the Committee follow the dynamics of this industry to 
determine whether the 1990 amendments are producing the consequences 
for clean air and international trade that were anticipated when the 
legislative compromise was negotiated in 1990.
    Problem 4: The risk analyses used by EPA to make public health 
determinations are not always clear, objective, open to public 
scrutiny, and rooted in the best available science.
    The problems the agency faces in using public health science in 
risk assessment are important to sound implementation of He Clean Air 
Act but these same problems affect EPA's implementation of other 
environmental laws, such as the Safe Drinking Water Act and the 
Resource Conservation and Recovery Act. Here I shall cite several 
examples to illustrate the general point that Congress needs to take 
greater interest in the scientific integrity of EPA's public health 
determinations and the technical processes of risk assessment that 
support these determinations.
    First, cancer-risk determinations will play a critical role in 
EPA's implementation of the residual-risk provisions of CAAA-90, yet 
EPA has still not modernized it's cancer risk assessment guidelines to 
account for advances in biological understanding of the mechanisms of 
cancer induction. These advances can have a critical impact on which 
chemicals are classified as ``carcinogens'' for regulatory purposes and 
what dose-response relationships are assumed in quantitative modeling 
of cancer risk. EPA has proposed reforms but is moving at a slow pace 
to adopt them. The agency's recent decision to ignore mechanistic 
science regarding chloroform has sent a signal in the scientific 
community of the agency's weakened commitment to modernize methods of 
cancer risk assessment (Chloroform is a chemical shown to cause cancer 
in animals at high doses that mechanistic science suggests is unlikely 
to cause human cancer at low doses).
    Several years ago I served on a Science Advisory Board (SAB) 
Committee charged with assisting EPA in performing its reassessment of 
dioxin, a chemical of clear regulatory significance that has been the 
subject of extensive scientific study. EPA prepared a lengthy draft 
risk assessment but, despite several years of ``talk'', has never 
attempted to respond to the written comments of the SAB Committee and 
has not issued a final risk assessment of dioxin. When EPA falls years 
behind its published schedule to make progress in risk assessment, it 
undermines the credibility of the agency as well as the agency's risk 
assessment process. The Congress should look into what is happening to 
cancer risk assessment at EPA.
    Second, a mayor National Research Council Report (1994), Science 
and Judgment in Risk Assessment, made numerous recommendations aimed at 
enhancing the quality and transparency of EPA's risk assessment 
process. With the exceptions of some notable improvements in human 
exposure assessment, the bulk of the NRC recommendations have not yet 
been implemented by EPA. EPA's recent report to Congress on plans to 
implement the residual risk provisions of the Clean Air Act makes very 
little use of the NRC report or of a subsequent report by the 
Commission on Risk Assessment and Management appointed by Congress and 
the President As Congress considers reauthorization of the air toxics 
provisions of the Clean Air Act, they should examine why EPA has given 
relatively little priority to improving the agency's risk assessment 
and management processes.
    Third, the controversy over EPA's effort to establish a new primary 
air quality standard for particles illustrated how EPA may seek to use 
scientific studies whose original data are not available for public 
scrutiny. Two important studies of the chronic health impacts of 
breathing fine particulate matter (Dockery et al, 1993; Pope et al 
1995) were cited by USEPA in support of the new particle standard but 
the agency has not succeeded in making the original data from these 
studies available for public scrutiny. The Health Effects Institute has 
played a constructive role in reviewing and reanalyzing these original 
data but the goal of providing public access to original date 
supporting regulatory determinations has not yet been accomplished 
under the Clean Air Act. The Office of Management and Budget is 
currently working on implementation of a congressional requirement to 
solve this problem for future rulemakings; the success of OMB's effort 
should be followed closely by the Congress.
    Finally, EPA continues to publish benefit estimates for the Clean 
Air Act that are based on a dubious ``value-of-statistical life'' (VSL) 
method. As employed by EPA the same VSL is applied in all situations, 
regardless of whether a citizen: loses 1 year of life expectancy or 40 
years of life expectancy from air pollution. The VSL method also 
ignores the functional quality of the life years that are lost. Better 
methods are available in the field of health economics but EPA does not 
yet use them.
    Problem 5. Congress and EPA continue to be preoccupied with outdoor 
air pollution, even though a substantial body of scientific information 
suggests that indoor air pollution is a more serious public health 
problem.
    The legislation we are discussing today would more appropriately be 
entitled the ``OUTDOOR Clean Air Act'' because the provisions of the 
law and the resulting compliance expenditures made by industry and 
households are devoted primarily to reducing exposure to outdoor air 
pollution from outdoor sources. Controlling outdoor sources of air 
pollution will have secondary benefits inside homes and offices because 
outdoor air pollution is a significant cause of indoor air pollution. 
Yet Tic major sources of indoor air pollution are not regulated by the 
Clean Air Act (c.g., environmental tobacco smoke, naturally occurring 
radon gas, and a variety of building materials, consumer products, and 
cooking practices). As a country, we have made so much progress in 
reducing outdoor sources of air pollution that leading scientists 
believe that indoor sources of air pollution are of equal or greater 
public health concern compared to the residual amounts of outdoor air 
pollution (Cross, 1990; National Research Council, 1991; Samet and 
Spengler (eds), 1991).
    A recent conference stimulated by EPA and OSHA scientists arose out 
of recognition that efforts to control outdoor air pollution could 
inadvertently exacerbate levels of air pollution indoors (e.g., if the 
MACT regulations governing air toxics cause factories to reduce 
ventilation rates in buildings and concentrate pollutants indoors where 
workers will be placed at greater risk). Yet we have only scratched the 
surface ? public discussions of the indoor air quality issue because 
Congress has given the greatest priority to further regulation of 
outdoor sources of air pollution. The first reauthorization hearing of 
the Clean Air Act is a good the to consider whether some of the 
priority assigned to cleaner outdoor air could be better expended ? 
efforts to enhance the quality of indoor air.
    Thank you very much for the opportunity to provide this testimony. 
I am certainly willing and eager to provide any additional information 
that could assist the Committee's reauthorization efforts.
                               references
    Cross FB, Legal Responses to Indoor Air Pollution, Quorum Books, 
NY, NY, 1990
    Dockery DW, Pope CA, Xu X, Spengler Jay, Ware JH, Fay ME, Ferris 
E3C;, Speizer FE, ``An Association Between Air Pollution and Mortality 
in Six Cities,'' New England Journal of Medicine, vol. 329, December 9, 
1993, pp. 1753-1759.
    Environmental Protection Agency, ``The Benefits and Costs of the 
Clean Air Act, 1990 to 2010,'' Washington, DC, September 1999 (draft).
    Graham ID, ``Regulation of Airborne Carcinogens Under Section 112 
of the Clean Air Act, 77 Duke Law Journal., 1985, pp.100-150.
    Graham ID, Wiener JW (eds), Risk Versus Risk: Tradeoffs in 
Protecting Health and the Environment, Harvard University Press, 1995.
    Graham JD, Hartwell JK (eds), The Greening of Industry: A Risk 
Management Approach, Harvard University Press, Cambridge, MA, 1991.
    Hahn RW (ed), Risks, Costs, and Lives Saved: Getting Better 
:Results from Regulation, Oxford University Press, NY, 1995.
    Hahn RW, ``Regulatory Reform: Assessing the Government's Numbers,'' 
Working Paper 99-6, AEI-Brookings Joint Center for Regulatory Studies, 
Washington, DC, July 1999.
    Morgenstern R (ed), Economic Analyses at EPA: Assessing Regulators 
Impact, Resources for the Future, Washington, DC, 1991.
    National Research Council, Human Exposure Assessment for Airborne 
Pollutants: Advances and Opportunities, National Academy Press, 
Washington, DC, 1991.
    National Research Council, Science and Judgement in Risk 
Assessment, National Academy Press, Washington, DC, 1994.
    Pope CA, Thun MJ, Namboodiri I, Dockery DW, Evans JS, Speizer FE, 
Heath CW, ``Particulate Air Pollution as a Predictor of Mortality in a 
Prospective Study of US Adults,'' Am J Respir Crit Care Medicine, vol. 
151, 1995, pp. 669-674.
    Samet JM, Spengler JD (eds), Indoor Air Pollution: A Health 
Perspective, Johns Hopkins University Press, Baltimore, MD, 1991.
    Smith AE, Ross MT, ``Benefit-Cost Ratios of the CAAA by Title,'' 
Charles River Associates, Washington, DC, October 1, 1999 (draft).
    Stavins RN, ``What Can We Learn from the Grand Policy Experiment? 
Lessons from S02 Allowance Trading,'' Journal of Economic Perspectives, 
vol. 12, No 3, Summer 1998, pp. 69-82.
    Warren E, Marchant G. ``More Good than Harm: A Hippocratic Oath for 
Environmental Agencies and Courts,'' Ecology Law Quarterly, vol. 70, 
1993, pp 379-440.
                                 ______
                                 
  Responses by John Graham to Additional Questions from Senator Baucus
    Question 1. In 1981, the National Commission on Air Quality stated: 
In the [Clean Air Act], Congress recognized that while the levels of 
air pollution at which public health is affected generally do not vary 
among different locations, the costs of meeting a specific standard can 
vary substantially from area to area, depending on the severity of the 
pollution. Thus, if a national air quality standard were based in part 
on the costs of complying with it, the high costs of meeting the 
standard in a few heavily polluted areas could result in the standards 
being set at a less protective level than is achievable in a 
reasonable, economic fashion in other areas.
    Similarly, a few costly technologies or heavily impacted industrial 
sectors could skew the cost assessment of a national air quality 
standard. Please discuss this issue in light of your suggestion that 
cost-benefit analysis be incorporated into derivation of national air 
quality standards.
    Response. There is a fundamental problem with applying the same air 
quality standard to all States and localities, regardless of their 
degree of motorization or industrialization. Under current law, we 
maintain this fiction only by granting continued exemptions or waivers 
to regions of the country (e.g., Los Angeles) that are consistently out 
of compliance with primary ambient air quality standards. If a State or 
locality is willing to accept somewhat greater pollution levels in 
their community in exchange for economic benefits (e.g., industrial 
employment or greater use of automobiles), that is not necessarily an 
irrational judgment. Decades ago, there was fear that allowing some 
States to have weaker environmental standards than others would cause a 
``race to the bottom'', with all States allowing more pollution to 
attract industry. Recent research by Professor Richard Revesz of New 
York University Law School has demonstrated that this ``race to the 
bottom'' theory is unfounded. It turns out that Governors and Mayors 
(as well as Senators) tend to care about air quality as well as 
economic prosperity. Even if a uniform national standard is maintained, 
it would be advisable to apply a cost-benefit test to each Federal rule 
or State Implementation Plan that is proposed to implement the national 
standard. Under this scheme, a strict national standard could be 
maintained even though inefficient rules aimed at particular industries 
or regions of the country could be rejected on cost-benefit grounds.

    Question 2. Your testimony suggests that EPA does not always use 
credible science (or ``sound science,'' as it is often referred to in 
Congress) in implementing the Clean Air Act. How would you define 
``sound science?'' How should Congress determine what is ``sound 
science'' when legislating or conducting oversight? Is there a test of 
``sound science'' that EPA should apply in the practice of developing 
air quality standards?
    Response. There is no universal definition of credible or sound 
science. However, there are some important features of scientific 
information that make it more likely to be sound and credible. Such 
features of sound science include well-specified, a priori hypotheses, 
unbiased research designs, high quality methods of data collection, 
appropriate methods of data analysis, peer review, replication of key 
findings by independent investigators, public availability of original 
data for reanalysis (subject to reasonable confidentiality 
protections), and plausibility of results in light of other scientific 
knowledge (e.g., weight-of-evidence determinations). In applying these 
principles to specific scientific issues, there is certainly room for 
reasonable differences in scientific opinion. For a discussion of US 
organizations that have played a strong role in promoting sound science 
in regulatory policy, see S. Jasanoff, The Fifth Branch: Science 
Advisors as Policy Makers, Harvard University Press, Cambridge, MA, 
1990; J. Graham (ed), Harnessing Science for Environmental Regulation, 
Praeger, Wesport, CN, 1991; M. Powell, Science at EPA: Information in 
the Regulatory Process, Resources for the Future, Washington, DC, 1999.

    Question 3. In the peer review of EPA's 1997 proposal on very fine 
particulate matter (PM2.5), 19 of the 21 Clean Air 
Scientific Advisory Committee members voted to recommend that 
PM2.5 be regulated. However, the panel could not reach a 
consensus on the level at which PM2.5 should be regulated; 
four panelists supported specific ranges of standards at the lower end 
of EPA's recommendations, seven supported specific ranges at the upper 
end, two did not think that a PM2.5 standard was warranted 
at all, and the remaining eight supported the concept of a standard but 
declined to select a specific range or level. Generally speaking, how 
should Congress ``read'' a scientific peer review outcome such as this? 
How should EPA respond to such an outcome? Is there a general ``rule'' 
that Congress and EPA could use to judge when a regulatory body should 
act or not act in response to a mixed peer review?
    Response. I have no opinion on how EPA or Congress should have 
reacted to the splintered peer review panel on particulate matter.

    Question 4. Some argue that issues--such as principles of 
precaution, equity, environmental justice, and individual rights--need 
to be considered in the development of environmental standards. 
However, considerations of these issues do not fit neatly into either 
risk assessment or cost-benefit ``tests.'' How and at what point should 
these issues be integrated into the standard setting process?
    Response. Cost-benefit analysis, in its strictest form, addresses 
only quantifiable matters of economic efficiency. . Yet more practical 
formulations of the cost-benefit test allow for consideration of 
factors such as precaution, equity, environmental justice, and 
individual rights. See, for example, the cost-benefit test crafted by 
Senators Fred Thompson and Carl Levin in S. 746 (The Regulatory 
Improvement Act). This test, which was judged to be acceptable by the 
Clinton-Gore Administration, authorizes decisionmakers to depart from 
strict cost-benefit reasoning in circumstances where the decisionmaker 
has compelling equity or other considerations. The Clinton 
Administration's Executive Order on Regulatory Planning also employs a 
practical cost-benefit test that allows consideration of values other 
than economic efficiency. flaw in the Clean Air Act is that, in various 
sections, it can be read to prohibit any consideration of economic 
efficiency (in effect allowing these other values to completely 
``trump'' economic efficiency). .

    Question 5. Your testimony suggests that the Clean Air Act's 
current standard-setting breaks down when it is confronted with 
determining ``safe'' levels for pollutants for which no threshold for 
adverse effects is discernible. However, carcinogens are commonly 
regulated, but they are typically treated as non-threshold pollutants 
and their ``safe'' levels are established based on health policy 
conventions related to acceptable risk. Similarly, the regulatory 
``safe'' level (e.g., reference dose) for many threshold non-
carcinogens is often not discernible and must be determined using 
safety factors based on health policy conventions. Does the failure of 
scientific data alone to define a clear ``safe'' level necessarily lead 
to ``spurious rationales'' for non-zero standards? Since the 
``science'' is rarely certain, should the Agency and Congress make 
health-based policy judgments to estimate ``safe'' levels for 
environmental pollutants?
    Response. For non-threshold pollutants, you are correct that 
``safe'' levels of pollution are sometimes defined by reference to 
``health policy conventions'' that define acceptable or negligible 
risk. Unfortunately, these conventions have no logical foundation (in 
philosophy or science) and thus it should not be surprising that the 
conventions are applied inconsistently in various arenas of 
environmental policy. The same level of cancer risk from involuntary 
exposure to pollution, for example, may be judged acceptable in one 
context or unacceptable in another context, with no mitigating factors 
providing an explanation for the difference. For a comprehensive review 
of these health-policy conventions, including their lack of 
philosophical and scientific foundation, see A. Rosenthal, G. Gray, 
I.D. Graham, ``Legislating Acceptable Cancer Risk from Exposure to 
Toxic Chemicals,'' Ecology Law Quarterly, vol. 19, 1992, pp. 269-362. 
Health policy judgments should be based on a practical cost-benefit 
test rather than on mythology about what risks are ``acceptable''.

    Question 6. Your testimony proposes that EPA use a ``lenient'' 
cost-benefit analysis to determine whether the incremental costs of a 
proposed national air quality standard are ``grossly disproportionate'' 
to anticipated benefits. Please define ``grossly disproportionate'' and 
elaborate on why you believe the fine particulate standard would pass 
this test, but the ozone standard would not.
    Response. ``Grossly disproportionate'' is proposed as a more 
``lenient'' standard than the ``benefits must exceed costs'' test that 
informs strict cost-benefit determinations. A careful reading of the 
EPA's Regulatory Impact Analysis on ozone and particulates reveals that 
the ozone standard might be vulnerable to judicial challenge because 
the quantifiable benefits are less than the costs, substantially so 
under several reasonable scenarios. The reverse is the case for the 
particulate standard, which has estimated benefits well in excess of 
costs. The only factor that might ``save'' the ozone standard is the 
long list of qualitative (non-quantifiable) benefits. However, there 
were also some categories of cost that EPA was unable to quantify.

    Question 7. At the same time you propose a cost-benefit analysis be 
used to test a new or modified primary air quality standard, you state 
that the harms associated with air pollution are ``unlikely to be 
resolved conclusively at low levels of air pollution now found in the 
USA due to the limitations of modern scientific methods of toxicology 
and epidemiology.'' Please explain how a cost-benefit analysis can 
effectively characterize the benefits of an air pollution standard when 
faced with the difficulty presented by this ``causation'' issue.
    Response. The discipline of risk assessment was developed for 
circumstances where risks at low doses of pollution cannot be directly 
measured by epidemiology and toxicology. See Center for Risk Analysis, 
A Historical Perspective on Risk Assessment in the Federal Government, 
Harvard School of Public Health, Boston, MA, March 1994. Cost-benefit 
analyses commonly employ the results of risk assessments, which 
extrapolate the risks observed at high doses to low doses using various 
dose-response models. These estimates of risk can have large 
uncertainties, which is why it is critical for the cost-benefit analyst 
to be informed of these uncertainties in a quantitative manner. See 
National Research Council, Science and Judgement in Risk Assessment, 
National Academy Press, Washington, DC, 1994, Richard Morgenstern (ed), 
Economic Analyses at EPA: Assessing Regulatory Impact, Resources for 
the Future, Washington, DC, 1997.

    Question 8. Some have asserted that cost-benefit analysis of 
environmental and occupational safety regulations puts the benefit side 
of the equation at an inherent disadvantage. This is because estimates 
of compliance costs (e.g., dollar cost of installing new technologies 
at affected industries) are typically easier to produce and ostensibly 
``harder numbers'' than estimates of benefits (e.g., dollar value of 
increased visibility or averted health harms at low levels of air 
pollution). The result, as asserted, is that an uneven, ``apples and 
oranges'' dynamic is created, leaving the benefit side of a cost-
benefit in an inherently weaker position in the context of regulatory, 
political, and legal proceedings. Please comment on this issue.
    Response. This concern has been expressed since I entered the field 
in 1980 and the concern is still expressed today. However, the concerns 
expressed today often do not recognize the dramatic scientific progress 
that has been made in quantifying and monetizing the benefits of 
health, safety, and environmental regulation. For a review of this 
progress, see G. Tolley, D. Kenkel, R. Fabian, Valuing Health for 
Policy: An Economic Approach, University of Chicago Press, Chicago, 
Illinois, 1994; R. Kopp, W.W. Pommerehne, N. Schwarz, Determining the 
Value of Non-Marketed Goods, Kluwer Academic Publishers, Boston, MA, 
1997.

    Question 9. Considerable concern has been expressed about the 
ability of cost-benefit analysis to properly address such issues as 
monetizing or quantifying positive benefits, scoping all relevant 
benefit categories, and calculating discount rates for future benefits. 
Cost-benefit analysis has been called a primitive art and its use is 
often said to be complicated, expensive, and controversial. This 
concern suggests that adding a ``particularly speculative'' cost-
benefit analysis to the standard-setting process would not necessarily 
diminish, and may even add a new dimension to the atmosphere of 
arbitrariness, mistrust, and adversarialism that your proposal seeks to 
address. Please comment on this concern.
    Response. Cost-benefit considerations are already a major part of 
the regulatory process, sometimes implicitly through the information 
supplied by stakeholders and sometimes explicitly through analyses 
prepared by agencies (e.g., under mandate of Presidential Executive 
Order). What creates mistrust and adversarialism is making decisions on 
two sets of books: one for stakeholders (which clearly does account for 
costs and benefits, however imperfectly and mysteriously) and one for 
journalists and the lay public (which exhibits a sneaky attitude that 
``costs were not a factor''). This overt dishonesty undercuts the 
credibility of the regulatory process and diminishes trust in 
government. (By the way, cost-benefit analysis was a primitive art in 
1980 but is considerably more advanced today. It can certainly be 
improved in the future.)
    Question 10. Are you aware of any studies on the accuracy of direct 
cost estimates related to individual Federal regulations? Do these 
studies suggest that these estimates tend to under- or over-estimate 
the direct costs of regulation?
    Response. I believe that Richard Morgenstern of Resources for the 
Future has prepared a study on the validity of regulatory cost 
estimates. My recollection is that both types of errors were found but 
that errors of overestimation were more frequent than errors of 
underestimation.

    Question 11. You indicated that, except for the acid rain and CFCs 
Titles, the CAA Amendments of 1990 largely flunk the cost-benefit test. 
By what margin? and what assumptions and methodology do you use to 
arrive at such a statement?
    Response. My conclusions are based on EPA's own retrospective cost-
benefit analysis of the 1990 Amendments to the Clean Air Act, analyses 
that were mandated in the Act at the insistence of Senator Moynihan and 
others. There is also a new analysis prepared by Charles River 
Associates that reaches a similar conclusion.

    Question 12. In your testimony, you suggested that the oxygen 
content requirement for reformulated gasoline in the Clean Air Act 
Amendments of 1990 should have gone through a more careful risk-benefit 
analysis before being adopted by Congress. Most data suggest that that 
requirement has resulted in significant overcompliance with the air 
toxics emissions reductions goals, and provided carbon monoxide 
emissions improvements and overall improved air quality. The 
requirement did not dictate the use of MTBE. How should Congress have 
acted differently before establishing this requirement to assure that 
no less than the same environmental benefits would have accrued in the 
same time period?
    Response. Before mandating oxygenation of fuels, Congress, EPA, and 
the Bush White House should have looked more carefully at the risks 
that might be created by the chemicals used to oxygenate fuels. 
Although Congress did not mandate MTBE per se, it was well known at the 
time that MTBE was likely to have an economic advantage over other 
oxygenates in several regions of the country. It was also known that 
MTBE is a highly persistent chemical and that there were leaks in many 
underground gasoline storage tanks throughout the country. (I do have 
some sympathy with the claim that the MTBE is a blessing that has 
exposed these leaks, though the full cost of plugging all these leaks 
needs to be calculated). Your expression of confidence in the 
environmental benefits of oxygenation is not fully supported by the 
findings of a recent report by the National Research Council, the 
operating arm of the National Academy of Sciences. Indeed, the original 
determination that the benefits of oxygenation would exceed costs and 
risks was never established by a careful, peer-reviewed analysis. You 
may also be interested in reading some of the analyses of MTBE that are 
now under review in the State of California, some commissioned by 
private parties and some commissioned by the State of California. Based 
on reading these draft analyses, I am not convinced that the oxygenates 
requirement is a reasonable policy.

    Question 13. Section 109 of the Clean Air Act requires the 
establishment of ``. . . ambient air quality standards the attainment 
and maintenance of which in the judgment of the Administrator, based on 
such criteria and allowing an adequate margin of safety, are requisite 
to protect the public health.'' This section seems to embody a 
regulatory philosophy much closer to the Hippocratic oath (``I will 
follow that system of regimen which, according to my ability and 
judgment, I consider for the benefit of my patients, and abstain from 
whatever is deleterious and mischievous'') than your testimony suggests 
you support. You suggested that a clean air regulation should go 
forward so long as ``we are doing [incrementally] more good than harm. 
`` That position seems to contradict a common interpretation of the 
Hippocratic oath, which is ``first, do no harm,'' not ``do more good 
than harm.'' Please comment.
    Response. The Hippocratic oath, as practiced in modern medicine, 
clearly gives credence to concerns about the side effects of treatment 
as well as the effectiveness of treatment. See J. Graham, J. Wiener, 
Risk Versus Risk: Tradeoffs in Protecting Health and the Environment, 
Harvard University Press, Cambridge, MA, 1995.

    Question 14. At the hearing, you stated, ``I think any careful 
environmental analysis of what is going on here would indicate that we 
are having less economic productivity in this country and we are having 
more air pollution in other countries.'' Please provide the Committee 
with references to any analyses in scholarly publications supporting 
this conclusion.
    Response. The example I cited is the regulation of air taxies from 
the coke production industry under the 1990 Amendments of the Clean Air 
Act. This regulation has provided competitive economic advantage to 
importers of coke who are not subject to such stringent emission 
requirements and prohibitions on construction of new byproduct recovery 
batteries (through zero percent door-leak limitations). See J. Graham, 
J. Hartwell (ed), The Greening of Industry: A Risk Management Approach, 
Harvard University Press, Cambridge, MA, 1997, pp. 137-168. In his 
remarks, Senator Voinovich referred to related developments in his 
State of Ohio, which he observed (and tried to prevent) as Governor.

    Question 15. Conducting the comprehensive cost-benefit analyses 
which you advocate as part of the regulatory process would seem to be 
significantly more resource intensive than the current system. Given 
that Federal discretionary funds are likely to continue to decline in 
the near future, it seems logical that the bulk of the new bureaucracy 
necessary to conduct these analyses would be funded through fees placed 
on those seeking permits to pollute or on those desiring to expose the 
public and the environment to new and potentially harmful substances. 
Please comment.
    Response. I have no objection to taxing pollution as a means to 
fund more and higher quality analyses at agencies such as EPA. I want 
to emphasize that I would support taxing pollution, not economic 
production. The latter mistake was made by Congress when it designed 
finances for the Superfund Program, which taxes petrochemical companies 
without regard to the extent of their prior or current pollution.
                               __________
Statement of Richard L. Revesz, Professor of Law; Director, Program on 
      Environmental Regulation, New York University School of Law
    Mr. Chairman and Members of the Subcommittee: Thank you for 
inviting me to testify before you today. I would like to discuss a 
number of issues concerning the possible use of cost-benefit analysis 
under the Clean Air Act.
    First, I will briefly explain the technique for valuing human lives 
that is generally employed as the starting point for the determination 
of the benefits of environmental regulation. This technique involves 
ascertaining the wage premiums demanded by workers employed in risky 
occupations who face a probability of death from industrial accidents. 
Second, I will explain why valuations based on such wage premiums need 
to be adjusted upward before they can be properly used in the context 
of environmental regulation. Third, I will show why certain downward 
adjustments of the value of life that have been advocated in certain 
academic and public policy circles are in fact inconsistent with the 
technique of cost-benefit analysis and should not be performed. Fourth, 
I will explain why the discount rate used by the Office of Management 
and Budget (OMB) in its administration of Executive Order 12,866 is a 
great deal higher than rates supported by economic theory, and show 
that, as a result, certain environmental benefits are severely 
undervalued. Fifth, I will discuss how the Executive Order and various 
legislative proposals couple cost-benefit analysis with procedural 
devices designed to thwart regulation, rather than to make regulation 
more rational.
    The issues discussed in Parts I, II, and IV of this testimony are 
discussed in more detail in an article that I recently published, which 
is attached as Appendix I.
            i. valuations of human life in workplace context
    The primary benefit of many important environmental statutes is the 
human lives that are saved. Thus, properly valuing human lives must be 
an important part of any cost-benefit inquiry.
    Since the 1970's, willingness-to-pay studies have become the 
standard economic technique for placing a value on human life. By far 
the most common method for performing such valuations focuses on the 
choices that workers make in accepting risky jobs. The approach begins 
by defining sets of jobs that require comparable skills and offer 
comparable non-monetary amenities, except that one exposes the worker 
to a higher risk than the other. Presumably, a rational worker would 
not accept the riskier job unless she obtained sufficient compensation 
for the additional risk. The wage differential between the riskier and 
the less risky jobs is the compensation that the worker therefore is 
assumed to demand for the additional probability of death that she 
faces as a result of having taken the riskier job. The wage 
differential divided by the additional probability of death is then 
considered to be the value of life.
            ii. why certain upward adjustments are necessary
    The value of life figures obtained from studies of risky 
occupations need to be adjusted upward to obtain a meaningful valuation 
of the benefits of environmental regulation. These adjustments must 
account for the generally involuntary nature of most environmental 
harms, for the differences between the median income of the workers who 
are the subjects of these studies and of the population as a whole, and 
for the dreaded nature of certain environmental contaminants 
(principally carcinogens). Not performing these necessary adjustment 
can result in an undervaluation of life by as much as a factor of six 
(or even more in certain contexts).
A. Involuntary Nature of the Harm
            1. Valuations of Voluntary Versus Involuntary Risks
    There is an extensive literature suggesting that individuals assign 
greater value to avoiding risks that are thrust upon them involuntarily 
than to risks that they incur voluntarily. The risk assumed by 
individuals who subject themselves to possible of industrial accidents 
is generally thought of as a risk assumed voluntarily. In contrast, the 
risk of exposure to environmental contaminants like air pollutants, is 
generally thought of as involuntary. As a result, if one takes the 
willingness-to-pay to avoid voluntary harms and imports that figure 
into the context of environmental regulation, there will be a 
systematic undervaluation of the benefits of regulation.
    Determining the extent of the undervaluation, however, is 
complicated. In general, the economics profession favors ``revealed 
preference'' valuations, under which the value assigned to a good can 
be observed through a market transaction. Willingness-to-pay studies of 
wage differentials individuals demand to accept a risk of death are a 
prominent example of a revealed preference technique. In contrast, 
because involuntary risks are by definition not based upon informed 
market transactions, revealed preference techniques are not available 
to assess the value of involuntary harms.
    Thus, in order to estimate how the valuations of involuntary and 
voluntary risks differ, one has to ask individuals directly the 
relative value that they attach to avoiding the two types of harms. The 
most comprehensive study of this type conducted a nationwide telephone 
survey of 1,000 households, asking interviewees to compare, among other 
pairs of risks, radon control in homes and a pesticide ban on fruits. 
The respondents also were asked to assess, on a ten point scale, the 
ease with which the respective risks could be avoided.
    The respondents' answers revealed that they considered the radon 
risk more voluntary in that it could be avoided with greater ease. When 
the respondents were told that the two programs would save the same 
number of lives and cost the same, 72 percent chose the pesticide ban 
and only 28 percent opted for the radon control. The median respondent 
viewed saving 100 lives by means of the pesticide ban as equivalent to 
saving 213 lives through radon control. Thus, the median respondent 
implicitly found the involuntary risk to be twice as harmful.
            2. Unrepresentativeness of the Population Exposed to 
                    Workplace Risks
    Valuations of life in workplace settings are inaccurate as a 
measure of the value of life for environmental programs for a second 
reason. In a competitive marketplace, individuals who take relatively 
risky jobs by definition have the lowest willingness-to-pay to avoid 
the risk. Other things being equal, employers will pay the least 
possible amount to fill the jobs, so individuals with higher valuations 
will not be hired.
    As a result, the willingness-to-pay valuations derived from the 
study of risky jobs are the valuations of a relatively small subgroup 
of the population with a disproportionate tolerance for risk. In 
contrast, most environmental risks affect a far broader sector of 
society. Thus, the valuations of the individual with the median 
valuation of risk (not an individual with an unusually low valuation) 
would be the appropriate metric to use in the valuation of life for 
cost-benefit analysis of environmental regulation. As a result, an 
appropriate correction needs to be made when extrapolating from the 
workplace to the environmental arena. Unfortunately, at this time there 
is no empirical literature that sheds light on the magnitude of such a 
correction. But if cost-benefit analysis becomes part of the 
decisionmaking process under the Clean Air Act, careful attention will 
need to be paid to this issue.
B. Impact of Income on the Valuations of Life
    It is generally recognized that willingness-to-pay valuations of 
life, such as those obtained in the workplace setting, are a function 
of the income of the subjects of the study. Economists have estimated, 
for example, that a 10 percent increase in income leads to a 10 percent 
increase in the value of life. As a result, there are at least two 
problems with using the valuations from workplace studies for cost-
benefit analyses of environmental regulation.
            1. Distribution of Income Across Occupations
    First, individuals who take risky jobs generally have lower-than-
average income. Thus, there is a problem in extrapolating from the 
willingness-to-pay studies conducted in high-risk occupations to the 
broader population affected by environmental carcinogens.
    The U.S. Census provides median and mean earnings for all workers 
and for various occupational categories. The category including 
operators, fabricators, and laborers is probably the best proxy for 
workers in risky occupations who are the subjects of empirical studies 
concerning the value of life. In 1996, the median and mean earnings for 
this category of workers were $16,883 and $19,981, respectively. In 
contrast, the corresponding figures for the population as a whole were 
$20,716 and $27,366, respectively. Thus, the median earnings of the 
population as a whole are 22.7 percent higher than the median for 
workers in risky occupations, and the mean earnings of the population 
as a whole are 37.0 percent higher. Adjustments of this magnitude 
therefore need to be performed to the valuations of life from the 
workplace setting.
            2. Increases in Income Over Time
    A second problem arises in connection with environmental risks that 
have a latency period, so that the death will not occur immediately but 
only after the passage of some time. Empirical studies show that 
individuals value their lives as a function of their current income, 
and not on the basis of projections of future income. But for latent 
harms, the valuation that individuals would have at the time of their 
death is what matters.
    Over the last several decades, median and mean incomes in constant 
dollars have been rising at a compound rate of about 1 percent per 
year. Thus, for contaminants with a 20 year latency period (as is the 
case with some carcinogens regulated under section 112 of the Clean Air 
Act) an upward adjustment of about 22 percent would have to be made to 
the valuation of life from the workplace setting to make the figure 
appropriate for environmental regulation.
C. Nature of Carcinogenic Deaths
    Particularly with respect to carcinogens regulated under section 
112, an upward adjustment of the value of life to account for the 
dreaded nature of the harm also needs to be performed. Indeed, there is 
an important difference in the nature of deaths resulting from 
industrial accidents on the one hand and from environmental exposures 
to carcinogens on the other. The former occur instantaneously and 
without warning. The latter often occur following a long and agonizing 
ordeal.
    In addition to the loss of the life itself, two other components 
need to be valued in the case of carcinogenic harms: the very painful 
and often extended period of morbidity that precedes the death and the 
dread aspects of carcinogenic deaths. The leading empirical study in 
this area found that the valuation of life in the case of carcinogenic 
exposure is about twice as high as the corresponding valuation in the 
case of an instantaneous death from an unforeseen accident.
         iii. why certain downward adjustment are inappropriate
    Some policy analysts have suggested that downward adjustments of 
the value of life obtained in workplace studies must be performed to 
account for the fact that the beneficiaries of certain environmental 
programs are older individuals, and that these individuals are often 
not in good health. The question of how cost-benefit analysis should 
account for the particular features of the population benefited by 
environmental regulation is very complex. In any event, however, the 
particular downward adjustments that have been advocated are 
inconsistent with a proper understanding of economic theory.
A. Treatment of Older Individuals
    One important pitfall to be avoided concerns the manner in which 
cost-benefit analysis deals with programs designed to benefit older 
individuals, particularly individuals in their seventies and above. 
Some academics and policy analysts argue that, in computing the benefit 
of an environmental program designed to save the lives of such 
individuals, their remaining life expectancy should be multiplied by 
the value of a life year. In turn, they assert that values of life 
years should be computed by assuming that workers who take risky jobs 
(whose median age is about 40) value each of their remaining years the 
same amount, and that their valuation of life can therefore be broken 
down into a value for life years. So, for example, making just a minor 
simplification, if the value of life derived from a worker with a 40-
year life expectancy is $6,000,000 (and the value of a life year is 
therefore $150,000) the value of the life of an elderly individual with 
only a 4-year life expectancy would be only $600,000.
    This methodology is seriously flawed. It assumes that the value of 
a life year is independent of the number of life years an individual 
has left to live. But this approach overlooks the critical role that 
scarcity plays in determining economic value. Just as individuals value 
diamonds more than water (because diamonds are scarcer), so too they 
are likely to value life years more highly when they have fewer life 
years left. Thus, there is no principled basis for taking the valuation 
of life year given by a forty-year old and assuming that a seventy-year 
old would have the same valuation. Instead, the latter's valuation 
should be expected to be considerably higher.
B. Quality Adjustments
    Another inappropriate approach consists in using an approach 
generally referred to as quality-adjusted life years (QALYs) in 
performing cost-benefit analyses. The idea behind QALYs is that the 
lives of sick individuals--asthmatics for example--should be assigned a 
lower value than the lives of healthy individuals (for comparable life 
expectancies). For example, the life of an asthmatic might be assigned 
only half the value of the life of a healthy individual. In the case of 
the individuals with a 4-year life expectancy discussed above, the 
value would then be reduced to $300,000--one twentieth the value of the 
life of a healthy individual with a 40-year life expectancy.
    The QALY technique, as generally employed, is incompatible with 
cost-benefit analysis. Indeed, the measure of benefits in cost-benefit 
analysis is derived from the aggregation of the individual preferences 
of all the individuals affected by a policy. Specifically, each 
individual has a willingness-to-pay to avoid being subjected to some 
risk, and it is the aggregation of the individual willingnesses to pay 
that determines what the benefit of the policy would be.
    The QALY technique, in contrast, does not seek to determine what 
individuals in poor health would be willing to pay to avoid a premature 
death. Instead, it relies heavily on the assessment of third parties, 
sometimes healthy individuals and medical professionals, of how 
undesirable a life in poor physical condition is relative to a healthy 
life.
    Such an inquiry suffers from two fundamental flaws. First, it does 
not construct the valuation by reference to the views of the affected 
individuals themselves, when it is the preferences of the affected 
individuals that form the fundamental units on which cost-benefit 
analysis is based. Second, how much more miserable one might be in one 
State rather than another is not responsive to the question of how 
one's willingness to pay to avoid a premature death varies in the two 
circumstances. Thus, the rankings provided by the QALY technique 
typically have no connection to willingnesses to pay, and therefore 
cannot properly be incorporated into cost-benefit analyses.
                      iv. choice of discount rate
    For many environmental contaminants, such as carcinogens regulated 
under section 112 of the Clean Air Act, the harm does not occur 
contemporaneously with the exposure: there is instead a period of 
latency. It has been the practice of the Office of Management and 
Budget (OMB), in its review of agency regulations under Executive Order 
12,866, to apply a discount rate in the case of latent harms to reflect 
the fact that the benefit of regulation would not accrue until the 
future.
    OMB currently uses a discount rate of 7 percent. There is a strong 
consensus in the economics profession that this rate is too high, and 
that an appropriate rate would be between 2 and 3 percent. The 7 
percent rate used by OMB is set by reference to the pre-tax rate of 
return on private investments. This rate would be the appropriate one 
to use if the United States had a closed economy, so that investments 
for pollution control displaced investments in other activities and, as 
a result, the government lost tax revenues.
    Increasing globalization, however, has led to the integration of 
capital markets and to the opening of the U.S. economy to foreign 
investment. In an open economy, the level of taxable investments is 
unaffected by environmental regulation because no capital projects are 
displaced; the government therefore does not lose the corresponding tax 
revenues. Under these conditions, the consumption rate of interest is 
the appropriate discount rate. This rate is generally taken to be the 
after-tax rate of return, adjusted for inflation, on relatively risk-
free financial instruments such as government bonds--a rate that 
currently stands in the 2-3 percent range.
    The flawed OMB approach leads to a substantial undervaluation of 
the benefits of environmental regulation. Consider the difference 
caused by using a 7 percent discount rate as opposed to a 2.5 percent 
discount rate (the mid-point of the plausible range). For contaminants 
with a 20 year latency period, the OMB approach undervalues the 
environmental benefits by a factor of 2.36 (the environmental benefits 
are 136 percent higher than OMB calculates them to be, so that a 
benefit that OMB determines to be $100,000,000 is in fact 
$236,000,000). For a 30-year latency period OMB's approach leads to an 
undervaluation by a factor of 3.63 (the environmental benefits are 263 
percent higher than OMB calculates them to be, so that a benefit that 
OMB determines to be $100,000,000 is in fact $363,000,000).
    If cost-benefit analysis were to become more prevalent as a result 
of congressional action, this longstanding problem should be corrected. 
It is noteworthy, moreover, that both the General Accounting Office 
(GAO) and the Congressional Budget Office (CBO) correctly employ the 2-
3 percent rate range rather than the flawed 7 percent rate used by OMB.
                          v. procedural issues
    Over the last two decades, cost-benefit analysis has acquired an 
understandably bad reputation. In its administration of Executive Order 
12,866 (and its predecessor, Executive Order 12,291), OMB has attached 
to the use of cost-benefit analysis procedures that, at least in part, 
have turned it into an anti-regulatory tool, rather than into a tool to 
make regulation more rational. Similarly, several of the regulatory 
reform bills that have been introduced since 1995 contained procedural 
mechanisms designed to thwart rather than to improve regulation. Let me 
draw your attention to these pitfalls so that the mistakes of the past 
(and of the present) can be avoided.
    First, the OMB mechanism and the various regulatory reform bills 
use cost-benefit analysis only in the context of the adoption of a new 
regulation. In contrast, satisfying a cost-benefit test is not required 
for the repeal of an existing regulation, the failure to adopt a new 
regulation, or the failure to make an existing regulation more 
stringent. The concern for the maximization of social welfare that is 
implicit in cost-benefit analysis would call for the use of the 
technique in each of these contexts. The possible losses in social 
welfare flowing from the repeal of a regulation, the failure to adopt a 
regulation, or the failure to make a regulation more stringent can be 
as detrimental--in fact, even more detrimental--than the social welfare 
losses caused by the adoption of regulations that do not pass a cost-
benefit test. There is simply no plausible justification in economic 
theory (or for that matter in logic) for caring about social welfare 
losses in one context but not in others.
    Second, at times there has been no disclosure (and at other times 
only limited disclosure) of the communications between interested 
parties and OMB concerning the cost-benefit analyses of environmental 
regulations. It is a core requirement of administrative law, embodied 
in section 4 of the Administrative Procedure Act, that any submissions 
to an agency in connection with the promulgation of regulations must be 
made part of the public record and available for public inspection. The 
obvious purpose of this requirement is to foster openness and to make 
judicial review more effective. These goals are seriously compromised 
when communications concerning cost-benefit are either wholly or 
partially shielded from the public, as has been the case until now in 
connection with OMB's administration of Executive Orders 12,866 and 
12,291.
    Third, some regulatory reform bills allowed for judicial review of 
the cost-benefit analysis prior to the promulgation of the regulation. 
This type of challenge runs counter to another well entrenched 
principle of administrative law--limiting judicial review to ``final 
agency action.'' This principle, which is codified in section 10(c) of 
the Administrative Procedure Act, bars piecemeal challenges. The 
approach of those bills would lead to piecemeal challenges with respect 
to a single regulation, seriously impairing the efficient use of 
judicial resources. More importantly, such an approach would paralyze 
the regulatory process during the pendency of any challenge to a cost-
benefit analysis and would have the clear effect of delaying regulation 
that passes the cost-benefit test and therefore improves social 
welfare.
    Fourth, some regulatory reform bills contained a petition process 
under which any individual or firm could ask the agency to repeal a 
regulation that did not satisfy the cost-benefit test. The agency, in 
turn, was required to respond promptly to such petitions and a denial 
of the request was reviewable by the courts. Administering a petition 
process of this sort would have the effect of paralyzing the 
Environmental Protection Agency and would seriously undermine the goal 
of rationalizing the regulatory process.
Conclusion
    If cost-benefit analysis were to play a larger role under the Clean 
Air Act, great care must be taken to ensure that it is used fairly, as 
a tool to make regulation more rational, and not as a tool that is 
biased against regulation. On the substantive front, it is important to 
ensure that human lives are not undervalued as a result of the use of 
various techniques that appear to have currency in some academic 
sectors. On the procedural front, cost-benefit analysis must be woven 
into the existing structure of administrative law, without either 
hiding it from public scrutiny nor subjecting it to legal challenges 
under rules that are different from those generally provided in the 
Administrative Procedure Act.
    Once again, I am grateful for the invitation to testify at this 
hearing. I am pleased to answer any questions that you might have.
                                 ______
                                 
Responses by Richard Revesz to Additional Questions from Senator Baucus
    Question 1. In testimony, Professor Graham suggested taking a two-
tiered approach to Clean Air Act standards. First, a lenient and 
flexible cost-benefit analysis, one that does not require high degrees 
of precision, would be used to set the actual ambient standard. Second, 
a more stringent cost-benefit analysis would be performed to determine 
whether or not to apply controls to sources. What views, if any, do you 
have on such an approach?
    Response. That approach is a sensible one. At the level of setting 
ambient standards, the information on costs and benefits is more 
speculative. For example, when evaluating an ambient standard, often it 
will not be clear how the resulting pollution control burden will be 
allocated among the various sources of pollution. As a result, the 
estimates on the costs of pollution abatement will have to be based on 
assumptions about what mix of emission standards will subsequently be 
adopted to ensure that the ambient standard is met. Given the resulting 
uncertainties, a flexible approach to cost-benefit analysis that does 
not require undue precision is probably desirable.

    Question 2. Some argue that issues--such as principles of 
precaution, equity, environmental justice, and individual rights--need 
to be considered in the development of environmental standards. 
However, considerations of these issues do not fit neatly into either 
risk assessment or cost-benefit ``tests.'' How and at what point should 
these issues be integrated into the standard setting process?
    Response. Public policy ought to pay attention to distributional 
issues, including questions of equity and environmental justice. A 
cost-benefit analysis that aggregates individual willingnesses to pay 
can be used to rank various environmental projects. Other social 
objectives, including distributional concerns, could be used to 
generate alternative rankings. A tradeoff between the two objectives 
can generate the preferred social policy. Alternatively, the cost-
benefit inquiry itself can take account of distributional concerns.
    With respect to individual rights, the policy prescriptions that 
emerge from cost-benefit analysis must be constrained by the need to 
avoid the violation of any constitutional rights, whatever their 
nature. Finally, because the precautionary principle is poorly 
specified, the relationship between this principle and cost-benefit 
analysis is not clear. It is not necessarily the case, however, that 
the precautionary principle would yield more stringent environmental 
regulation than cost-benefit analysis.

    Question 3. Some have asserted that cost-benefit analysis of 
environmental and occupational safety regulations puts the benefit side 
of the equation at an inherent disadvantage. This is because estimates 
of compliance costs (e.g., dollar cost of installing new technologies 
at affected industries) are typically easier to produce and ostensibly 
``harder numbers'' than estimates of benefits (e.g., dollar value of 
increased visibility or averted health harms at low levels of air 
pollution). The result, as asserted, is that an uneven, ``apples and 
oranges'' dynamic is created, leaving the benefit side of a cost-
benefit in an inherently weaker position in the context of regulatory, 
political, and legal proceedings. Please comment further on this issue.
    Response. There is an academic literature suggesting that the costs 
of pollution control tend to get overestimated in cost-benefit 
analyses. For example, cost-benefit analyses often assume that 
regulated firms will need to purchase pollution control equipment in 
order to meet the environmental standards. Over time, however, these 
firms choose instead to change their production processes, and as a 
result are able to meet the standards more cheaply. Properly conducted 
cost-benefit analyses should pay attention to such sources of 
systematic bias.
                                 ______
                                 
   Responses by Richard Revesz to Additional Questions from Senator 
                               Lieberman
    Question 1. What if the costs of controlling emissions from a 
particular industry would exceed the monetized benefits, but a group of 
low-income people near these facilities have higher cancer risks 
compared with those elsewhere. Do you think we should control those 
sources? If so, how would a cost-benefit test include these kinds of 
social considerations?
    Response. Distributional issues, including environmental justice 
concerns, ought to be relevant to environmental policy. Under cost-
benefit analysis, projects are undertaken based on the aggregate 
willingness to pay of the beneficiaries. Because the government 
undertakes large numbers of projects and regulatory initiatives, the 
losers with respect to one governmental intervention may well become 
winners with respect to another. But if government regulation produce 
persistent losers, as may be the case in some environmental justice 
contexts, redistribution measures should be undertaken.
                                 ______
                                 
                [From the Columbia Law Review, May 1999]
Environmental Regulation, Cost-Benefit Analysis, and the Discounting of 
                              Human Lives
(By Richard L. Revesz, Professor of Law, New York University School of 
                                  Law)
Introduction
    The use of cost-benefit analysis has become commonplace in 
environmental and other health-and-safety regulation. Such analysis is 
now mandated by Executive Order 12,866 for all major regulations, \1\ 
and may eventually be required by statute if Congress passes one of the 
various regulatory reform bills that have been pending for some time. 
\2\ The primary benefit of many important environmental statutes, as 
determined by the dollar value assigned by cost-benefit analysis, is 
the human lives that are saved. \3\ Thus, in determining whether a 
particular regulation can be justified on cost-benefit grounds, the 
central questions revolve around the value assigned to the lives that 
would be saved by the program. Probably the most vexing problem 
concerning these valuations has been whether to discount the value of a 
life saved to account for the fact that the loss does not occur 
contemporaneously with the exposure to certain contaminants.
    With respect to this issue, two opposing camps have developed among 
regulators, judges, and academics. A similar controversy has arisen in 
connection with other regulatory programs, \4\ as well as with the 
provision of medical services. \5\ Supporters of discounting argue that 
the value of human life must be treated in the same manner as the value 
of any other benefit or cost: because other benefits and costs are 
normally discounted to present value when they occur in the future, the 
value of life should be discounted as well. \6\ In contrast, opponents 
of discounting claim, generally by appeals to notions of ethics and 
morality, \7\ that lives saved in the future are no less valuable than 
lives saved in the present. As a result, they argue that discounting is 
inappropriate. \8\
    The debate, which is not confined to the United States, \9\ has 
taken on a relatively high profile, including discussion in the popular 
press \10\ For example, the issue played a role in the Senate's 
scrutiny of the unsuccessful nomination of Judge Douglas Ginsburg to 
the Supreme Court of the United States in 1987, \11\ and attracted the 
attention of Vice President Albert Gore during the 1992 Presidential 
campaign. \12\
    The discussion of the propriety of discounting human lives often 
conflates two different sets of problems. \13\ In the first, the 
benefits will not accrue until the future because the harm has a 
latency period. For example, an individual exposed to a carcinogen 
faces an increased probability of dying at some point in the future, 
perhaps 20 or 30 years later. In the second, the benefits of controls 
accrue primarily to future generations. Climate change caused by the 
presence of anthropogenic gases in the atmosphere is a prominent 
example of this phenomenon.
    The question of how to value lives threatened by latent harms was 
starkly posed in a regulatory proceeding that took place in the late 
1980's in connection with a partial ban on the use of asbestos 
promulgated by the Environmental Protection Agency (EPA). \14\ The 
Office of Management and Budget (OMB), which is responsible for 
reviewing regulations to ensure their consistency with cost-benefit 
principles, \15\ strongly urged discounting the value of human lives 
over the period of latency of the harm; under its then-existing policy 
of discounting environmental benefits at a 10 percent discount rate, 
the value of saving a life would have been reduced to only about 
$22,000. \16\ EPA withstood OMB's pressure and published final 
regulations that essentially rejected the concept of discounting. The 
EPA's regulation was invalidated by the Fifth Circuit, partly for this 
reason. \17\
    A recent article by Lisa Heinzerling shows how much rides on 
whether the value of human lives is discounted over a latency period. 
\18\ She shows that many environmental and health-and-safety 
regulations promulgated since the 1970's have acceptable cost-benefit 
ratios if the value of lives is not discounted, but fail cost-benefit 
analysis if those values are discounted. \19\
    Discounting issues play an even more critical role in connection 
with harms to future generations, particularly with respect to the 
effects of climate change. Because of the long lag until many of the 
harmful effects of excessive anthropogenic gases in the atmosphere are 
felt, how much our society is willing to spend on measures to prevent 
climate change may well depend on how the question of discounting is 
resolved. \20\
    Opponents of discounting adduce vivid statistics to illustrate what 
is at stake. For example, Derek Parfit notes: ``At a discount rate of 
five per cent, one death next year counts for more than a billion 
deaths in 500 years.'' \21\ Even economists who do not oppose 
discounting acknowledge its striking effects: ``When time horizons are 
very long, all benefits are discounted to zero using any positive 
discount rate, so that a death prevented in the distant future is worth 
nothing at the present time.'' \22\
    This Article seeks to shed light on what has become a shrill and 
unproductive debate. The polar positions on both the latency and future 
generations issues are analytically unsound and overlook important 
components of both problems. Moreover, the latent harm and future 
generation situations are analytically distinct: what one concludes 
with respect to discounting in one context says little about the 
appropriate treatment of discounting in the other.
    Part I addresses the problem of latent harms. Because there are 
essentially no empirical studies of the value of lives threatened by 
latent harms, regulatory analyses must adapt valuations derived from 
threats of instantaneous death in workplace settings. This Article 
argues that it is necessary to discount this value, to reflect that the 
years lost occur later in a person's lifetime. It also argues, however, 
that such discounting must be accompanied by countervailing upward 
adjustments, to account for the involuntary nature of exposure to 
environmental carcinogens, the dread such exposure causes, and the 
higher income levels of the victims. By not performing these 
adjustments, OMB may be undervaluing lives by as much as a factor of 
six, or even more for particularly long latency periods. Correcting 
this undervaluation, as this Article urges, could have an important 
impact on the regulatory process by allowing more stringent regulations 
to satisfy the requirements of cost-benefit analysis.
    Part II deals with harms to future generations. It shows that the 
use of discounting in that case is ethically unjustified. As a result, 
it argues that discounting approaches should not replace the principle 
of sustainable development, which is used in the major international 
environmental law agreements to measure our obligations to future 
generations. The discussion shows, however, that the principle of 
sustainable development is also problematic, and sets forth the 
principal elements of an attractive theory of intergenerational 
obligations. The practical implications can be enormous: the rejection 
of discounting may lead to a far more stringent response to 
environmental problems, such as climate change, that have long time 
horizons.
    The Article underscores the extent to which discounting raises 
analytically distinct issues in the cases of latent harms and harms to 
future generations, even though these two scenarios have generally been 
treated as manifestations of the same problem. \23\ In the case of 
latent harms, one needs to make intra-personal, intertemporal 
comparisons of utility, whereas in the case of harms to future 
generations one needs to define a metric against which to compare the 
utilities of individuals living in different generations. The case of 
latent harms gives rise to a problem that is primarily technocratic: 
determining how an individual trades off the utility derived from 
consuming resources at different times in her life. In contrast, the 
case of harms to future generations raise a difficult ethical problem. 
It is therefore not surprising that the appropriateness of discounting 
would be resolved differently in the two contexts.
    The Article does not address the role that cost-benefit analysis 
should play in environmental regulation--a subject that has spawned a 
large academic literature. \24\ Rather, its goal is more targeted. It 
assumes, consistent with current practice, \25\ that an important set 
of environmental and health-and-safety regulations will be evaluated 
under principles of cost-benefit analysis, and that human lives will be 
valued as part of this analysis. Given these practices, it seeks to 
determine the best way to account for the fact that certain losses do 
not occur contemporaneously with the exposure to a contaminant.
    A central goal of this Article is to move the regulatory process to 
wards a more thoughtful valuation of human lives threatened by environ 
mental carcinogens, and away from OMB's deeply flawed technique of 
taking valuations from the workplace setting and reducing them by an 
inflated discount rate. \26\ The Article also seeks to move the 
discussion of how to treat future generations beyond a focus on 
discounting, which is unlikely to provide an ethically defensible 
account of our obligations to future generations.
                            i. latent harms
    The discussion begins in Section A by reviewing the central role 
that the debate over discounting played in the Corrosion Proof Fittings 
case and the extent to which, despite the court's resolution in that 
case, the issue remains unsettled in the public policy arena. Section B 
explains that the valuations of human life in the economics literature 
have been conducted almost exclusively in the context of industrial 
accidents, where workers face a probability of instantaneous death. In 
contrast, as a result of understandable methodological complications, 
there have been essentially no valuations of risks to life with a long 
latency period, such as those posed by environmental carcinogens. Thus, 
it is necessary to construct a second-best valuation of a life 
threatened by a contaminant with a latency period, using as a starting 
point the valuations from the existing empirical studies on 
instantaneous deaths.
    Section C begins the task of constructing a second-best valuation, 
relying on temporal models that describe the value of life by reference 
to a stream of utilities that individuals receive if they are alive in 
particular time periods. When an individual faces a threat to life that 
manifests it self only after a latency period, she loses fewer life-
years than when the threat is instantaneous. Moreover, on average, the 
loss of life-years occurs further into the future. Downward adjustments 
to account for these two factors are therefore appropriate.
    Section D examines the plausibility of the assumptions underlying 
the temporal models explored in Section C. It also shows that the 
discounting of future utilities is conceptually different from the 
discounting of money flows.
    Section E turns its attention to three important upward adjustments 
that need to be made when extrapolating from the case of instantaneous 
deaths to that of carcinogenic harms. These adjustments are necessary 
as a result of the relationship between an individual's income and the 
value that she places on life, the involuntary nature of exposure to 
environmental carcinogens, and the dread people suffer from 
carcinogenic risk.
    Section F focuses on the choice of an appropriate discount rate. It 
shows that the emerging consensus in the economics literature calls for 
the use of a rate of 3 percent or less and takes issue with OMB's 
policy of prescribing a 7 percent rate.
    Section G estimates the undervaluation of life that results from 
OMB's approach of taking valuations from the workplace setting and, 
without further adjustment, mechanically reducing them by an inflated 
discount rate. Over a 20 year latency period, the OMB approach can lead 
to an underestimation by a factor of about six, with a factor of about 
two being attributable to the choice of discount rate.
    Section H argues that discounting the value of life in the context 
of latent harms does not pose significant moral or ethical dilemmas 
that are distinct from those raised by cost-benefit analysis in general 
and the valuation of human life in particular. It is simply one 
defensible adjustment in the process of constructing a second-best 
valuation, using workplace valuations as a starting point. Discounting, 
however, cannot be the only such adjustment.
    Before proceeding further, it is useful to underscore that Part I 
focuses on harms that an individual suffers as a result of an earlier 
exposure to an environmental contaminant. \27\ The term ``latent'' 
could be used to describe other phenomena as well: for example one 
might think that an environmental exposure producing a harm to future 
generations gives rise to a latent harm as well. As used throughout 
this Article, however, the term ``latent'' is used to describe only 
situations in which the exposure and the harm accrue to the same 
individual.
A. The Debate Over Discounting
    The appropriateness of discounting the value of human lives first 
received sustained attention in the regulatory proceeding that led to 
EPA's partial ban on the manufacture, importation, and processing of 
asbestos under the Toxic Substances Control Act (TSCA), and the 
challenge to this regulation in Corrosion Proof Fittings v. EPA. \28\ 
The question was highly controversial even before EPA's publication of 
the notice of proposed rulemaking in 1986. \29\ As required by 
Executive Order 12,291 (the Reagan Administration's predecessor of 
Executive Order 12,866), \30\ EPA submitted the draft rule to OMB for 
review before its publication in the Federal Register. In a March 1985 
letter to A. James Barnes, EPA's acting Deputy Administrator, OMB 
raised questions about whether the benefits of the rule exceeded its 
costs. \31\ In performing a cost-benefit analysis, OMB used a value per 
cancer case avoided of $1 million and discounted this amount at a rate 
of 4 percent for the length of the latency period. \32\(At the time, an 
OMB guidance document provided for discounting of costs and benefits at 
a rate of 10 percent, \33\ but OMB instead used the rate contained in 
EPA's guidance document on cost-benefit analysis.) \34\
    The following month, the propriety of discounting the value of 
human lives became an issue in connection with Barnes's Senate 
confirmation hearings:
    I have a great deal of ethical difficulty with a concept of 
applying a discount factor to human life. The lives of my three 
children are worth every bit as much to me 10 years from now as they 
are now. I personally reject that notion. I have talked to [EPA 
Administrator] Lee Thomas about it; I know that it is not one that 
finds favor with him. \35\
    In October 1985, a subcommittee of the U.S. House of 
Representatives chastised OMB for its insistence on discounting the 
value of human lives. \36\ It noted that discounting at OMB's 10 
percent discount rate over a 40 year latency period would reduce the $1 
million value per life saved to just over $22,000. \37\ Thus, on cost-
benefit terms, one could not justify a current expenditure of over 
$22,000 to save a life 40 years in the future. Even at a 4 percent 
discount rate, the $1 million value of life would be reduced to about 
$208,000. \38\
    The subcommittee referred to the testimony of Don Clay, Director of 
EPA's Office of Toxic Substances, that EPA ``never had used discounting 
over the latency period of a chronic hazard,'' and that, by reducing 
the value of benefits to such an extent, OMB's approach would prevent 
EPA from regulating any carcinogen with a long latency period. \39\ The 
subcommittee further reported that Clay ``personally opposed the 
discounting of lives in the asbestos case on ethical grounds.'' \40\ It 
concluded that OMB's position with respect to the discounting of the 
value of life was ``simply an outrage'' and urged EPA to ``reject the 
use of discounting over the latency period of diseases caused by 
chronic hazards.'' \41\
    EPA published the proposed rule on the asbestos ban in January 
1986. \42\ The proposal did not quantify the value of life or undertake 
any discounting of this value over the length of the latency period. 
\43\ EPA took a different approach, however, when it promulgated the 
final rule in July 1989. \44\ It assigned a value to human lives, but 
discounted it at a rate of 3 percent from the time of the promulgation 
of the regulation until the time of the exposure to the carcinogen. 
\45\
    The use of asbestos products does not necessarily result in 
immediate exposure; instead, exposure occurs when the product 
containing the asbestos begins to disintegrate. For example, some 
exposures occur when asbestos fibers are released into the air from the 
weathering of air conditioning products. \46\ Exposure is the first 
step of a process that might later lead to the incidence of cancer and 
subsequently to a death from cancer. EPA did not discount the value of 
human life from the time of exposure until the carcinogenic death, as 
OMB had urged, or even until the first manifestation of cancer.
    In its response to comments accompanying the final rule, EPA at 
tempted to defend this decision. EPA noted that comments had been 
written on both sides of the discounting issue:
    Some commenters argued that EPA, in the proposal, improperly failed 
to discount benefits to be derived from the rule, and in support of 
documents for a final rule, only discounted benefits until the time of 
the exposure that results in the cancer rather than until the 
occurrence of the disease. Other commenters argued that EPA should not 
discount benefits, stating that discounting the benefit of saving human 
life is inappropriate methodology for this rulemaking. \47\
    EPA's response revealed a degree of ambiguity on this question and 
provided at best a lukewarm defense of its course of action. It stated:
    Arguments can be made that estimating benefits without discounting 
is preferable in cases like this one where the primary benefits derived 
is [sic] the avoidance of human cancer cases. However, arguments also 
can be articulated supporting the discounting of benefits. \48\
    EPA was more categorical in defending its view that if discounting 
was appropriate at all, it was appropriate only until the time of 
exposure:
    Since the benefit of a regulation to control a hazardous substance 
occurs at the time of the reduced exposure, EPA has concluded that the 
appropriate period over which to discount is until the time of exposure 
reduction. This approach was used in this case after extensive review 
of applicable literature and an examination of the inherent biases and 
features of other approaches. \49\
    This position has an important corollary for environmental problems 
in which the regulation leads to an immediate decrease in the exposure 
of individuals as is the case, for example, with airborne air 
pollutants. For such pollutants, no discounting of the benefits of the 
regulation would be performed under EPA's approach, except perhaps for 
discounting from the time of the preparation of the cost-benefit 
analysis to the implementation of the regulation.
    Though EPA's explanation is not a model of clarity, one can surmise 
that its approach was not to discount for the period between the 
exposure and the death, when the harm was latent. Instead, the 
discounting that was performed affected only the period before the harm 
became latent.
    In October 1991, the Fifth Circuit vacated the regulation and 
remanded in Corrosion Proof Fittings v. EPA, \50\ in part because of 
EPA's treatment of the discounting issue. The Fifth Circuit took the 
position that discounting was necessary in order to provide for a fair 
comparison of costs and benefits accruing at different times:
    Although various commentators dispute whether it ever is 
appropriate to discount benefits when they are measured in human lives, 
we note that it would skew the results to discount only costs without 
according similar treatment to the benefits side of the equation. . . . 
Because the EPA must discount costs to perform its evaluations 
properly, the EPA also should discount benefits to preserve an apples-
to-apples comparison, even if this entails discounting benefits of a 
non-monetary nature. \51\
    The Fifth Circuit went on to hold that EPA had used an improper 
period for discounting, and that the value of human life should have 
been discounted to the time of injury. \52\ It noted:
    The EPA's approach implicitly assumes that the day on which the 
risk of injury occurs is the same day the injury actually occurs. Such 
an approach might be appropriate when the exposure and injury are one 
and the same, such as when a person is exposed to an immediately fatal 
poison, but is inappropriate for discounting toxins in which exposure 
often is followed by a substantial lag time before manifestation of 
injuries. \53\
    The court did not specify, however, whether it considered the 
injury to be the first manifestation of cancer or the death from 
cancer. The detection of carcinogenic cells is a serious injury, but if 
death does not follow it is not clear why it would be appropriate to 
attach to this injury the full value of life, rather than the value of 
the resulting morbidity. \54\
    Finally, the Fifth Circuit upheld EPA's choice of a 3 percent 
discount rate. It implicitly assumed that the correct discount rate was 
the real rate of interest (the nominal rate of interest minus the rate 
of inflation) and stated that, historically, this rate has fluctuated 
between 2 percent and 4 percent. \55\
    Despite the court's holding, the question of discounting the value 
of human life has continued to be controversial. For example, the 
Senate Report accompanying the Comprehensive Regulatory Reform Act of 
1995, \56\ which would require the use of cost-benefit analysis in 
regulatory proceedings, \57\ contains a statement by Senator Leahy 
railing against such discounting:
    Cost/benefit analysis assumes that benefits that occur in the 
future have very little value. After determining the value of human 
life, cost/benefit analysis applies a ``discount rate'' to benefits 
that will occur in the future. Benefits of the lives saved in the 
future by a regulation are reduced by 6-7 percent per year. . . . This 
business evaluation tool does not make sense when applied to the 
protection of human life. \58\
    The regulatory debate over the appropriateness of discounting of 
human lives, stated in conclusory terms and virtually devoid of any 
sustained analysis, fails to shed light on the important issues 
underlying this question. \59\ After providing a brief overview of the 
economic approach to valuing human life, the remainder of Part I seeks 
to fill this void.
B. Valuations of Human Life
    Since the 1970's, willingness-to-pay studies have become the 
standard economic technique for placing a value on human life. \60\ By 
far the most common method for performing such valuations focuses on 
the choices that workers make in accepting risky jobs. \61\ The 
approach begins by defining sets of jobs that require comparable skills 
and offer comparable non-monetary amenities, except that one exposes 
the worker to a higher risk than the other. \62\ Presumably, a rational 
worker would not accept the riskier job unless she obtained sufficient 
compensation for the additional risk. The resulting wage differential 
is the compensation that the worker obtains for the additional 
probability of death that she faces as a result of having taken the 
riskier job. \63\ An extrapolation, consisting of dividing the wage 
differential by the additional probability of death, is then per formed 
to determine the value of life. \64\
    Willingness-to-pay studies of the value of human life have been 
conducted almost exclusively in the context of industrial accidents, 
where the worker faces a risk of being either fatally injured by a 
piece of machinery and dying instantaneously, or surviving unscathed. 
\65\ In any time period, there is a probability that a fatal accident 
will occur. This probability is ascertained from industrial safety 
statistics. \66\
    One could use the same approach to determine the willingness-to-pay 
to be free from risks with long latency periods. \67\ As long as 
workers understood the additional probability of, say, dying of cancer 
from a riskier job, and knew the length of latency period, they could 
figure out how much additional compensation to demand in order to 
accept the job with the higher risk. From this wage differential, one 
would extrapolate to determine the value of the life. The fact that the 
harm would accrue only in the future would be reflected in the wage 
differential. For example, other things being equal, an individual with 
a comparatively high discount rate would demand a comparatively low 
wage differential. We would then have measured exactly what we wanted 
to see, and there would be no need to perform any discounting.
    It is likely that such studies have not been conducted for three 
principal reasons. First, the industrial statistics on deaths resulting 
from la tent harms are not as extensive as those for instantaneous 
accidents. The Federal Government became extensively involved in the 
regulation of workplace and environmental safety only in the 1970's 
(and prior State efforts in these areas were relatively modest). \68\ 
For example, if the Federal Government began to compile statistics on 
the risk of various work place settings in the mid-1970's, it would 
have immediately had a data set on instantaneous accidents. In 
contrast, for carcinogenic risks with a 20-year latency period, 
comparable statistics on such risks would not be available until the 
mid-1990's, unless retrospective studies could be per formed. Moreover, 
while accidents on the job are relatively easy to track, statistics on 
mortalities associated with latent harms require much more difficult 
tracking of the health status of individuals after they leave their 
jobs. Further, while the cause of on-the-job accidents typically is 
relatively easy to identify, the causal link between occupational 
exposure and future harms from carcinogens can be difficult to 
establish.
    Second, in order for willingness-to-pay studies to yield meaningful 
results, individuals must be able to properly understand the nature of 
the risk; otherwise, they cannot determine what sum of money properly 
compensates them for the risk. Some commentators doubt that our 
cognitive capacities are sufficiently developed to perform such 
valuations in the case of future harms. \69\
    Third, this problem is compounded by the fact that exposure to 
carcinogens may have a differential impact depending on an individual's 
characteristics, including, for example, whether she smokes. In order 
to decide how to respond to a wage premium, individuals would need to 
understand not only the ``pure'' carcinogenic risk of the job, but also 
the magnitude of any synergistic interactions that might result from 
such characteristics.
    In summary, the task of directly performing a willingness-to-pay 
study of the value of life in the case of latent harms is fraught with 
difficulties, perhaps insurmountable ones. Instead, to obtain such a 
valuation, resort to a second-best approach is necessary.
C. Discounting as a Second-Best Approach
    As a result of the difficulty of obtaining a direct willingness-to-
pay measure of the value of a life threatened by a latent carcinogenic 
harm, economists have devoted considerable attention to defining a 
relation ship between the value of a life lost today and the value of a 
life lost years from now. Such temporal models, also known as life-
cycle models, study the distribution of an individual's utility 
throughout her life. \70\
    The discussion that follows focuses, for illustrative purposes, on 
three different valuations: first, the life of a 40-year old that is 
lost today, for example, from an industrial accident; second, the life 
of a 60-year old, also lost today; and third, the life of an individual 
who is currently 40 years old but dies in 20 years as a result of 
exposure today to a carcinogen with a 20-year latency period. \71\ For 
this discussion, Vj,k denotes the value attached to the life 
of an individual exposed to a harm at age j who dies at age k. Thus, 
the values of the three lives described above can be expressed as 
V40,40, V60,60, and V40,60, 
respectively. To keep the discussion simple, it assumes that these 
individuals, if not exposed to the industrial or carcinogenic risk, 
would die of natural causes at age 80. \72\
    The three valuations differ in two important ways. \73\ First, the 
40-year old dying immediately loses 40 years of life whereas the 60-
year old dying immediately and the 40-year old dying in 20 years lose 
only 20 years of life. \74\ Second, the individual exposed to the 
carcinogen does not lose these 20 years of life immediately, but 20 
years later. \75\ Let ul denote the utility that an 
individual derives in year l from living that year. So, for example, 
for the 40-year old exposed today to the latent harm, u60 is 
the utility that the individual would derive in 20 years from living in 
the year following her sixtieth birthday. In contrast, for the 60-year 
old killed today in an industrial accident, u60 is the 
utility that the individual would have derived this year if the 
accident had not occurred.
    If these utilities were simply monetary payments as opposed to the 
well-being that comes from living, they could easily be compared with 
one another by discounting the future stream of benefits by a means of 
a discount rate. Discounting reflects the fact that it is more 
desirable to get a payment sooner rather than later. It is important to 
stress that this preference is not a function of the existence of 
inflation. In comparing monetary flows occurring at different times, 
the effects of inflation can be adjusted by converting all amounts to 
constant dollars. But even in an inflation-free world, it is best to 
get a given amount of money as soon as possible. Having the money 
sooner gives one the option of either spending it immediately or saving 
it for later, whereas getting it later (absent borrowing) rules out 
immediate spending. The rate used to discount amounts in constant 
dollars is typically known as a ``real'' discount rate. \76\
    Given a discount rate of r, the present value of a payment P that 
is paid t years from now is [1/(1 + r)t]P. \77\ I am not 
suggesting at this point that discounting to present value the utility 
that an individual derives from living for a year is equivalent to 
discounting a monetary payment, and will return to this issue later. 
\78\ Instead, I am showing the relation ship among the values of the 
three different lives if such discounting were appropriate.
    Then,

V40,40 = u40 + [1/(1 + r)]u41 + . . . 
+ [1/(1 + r)38]u78 + [1/(1 + 
r)39]u79

    The loss for the 40-year old killed by the industrial accident is 
the utility of living in the year following the individual's fortieth 
birthday, plus the utility of living 1 year later discounted for 1 
year, plus the utilities of living in all subsequent years until age 80 
(when the individual would have died anyway), with each utility 
discounted for the number of years elapsed since the present.
    In turn,

V60,60 = u60 + [1/(1 + r)]u61> + . . . 
+ [1/(1 + r)18]u78 + [1/(1 + 
r)19]u79

    Here, the loss takes the same form, except that the first year of 
loss of utility is the year following the individual's sixtieth 
birthday.
    Finally,

V40,60 = [1/(1+r)20]u60 + [1/(1 + 
r)21]u61 + . . . + [1/(1 + 
r)38]u78 + [1/(1 + r)39]u79

    Only years following the individual's sixtieth birthday are lost, 
and these losses are discounted by the number of years from the 
present.
    The relationship between V[60,60] and 
V[40,60] should now become apparent. The latter value is 
simply the former discounted by 20 years. \79\ In other words, both 
individuals lose the same years of their lives--those following their 
sixtieth birthdays--but the latter individual loses them 20 years later 
than the former. Thus,
    V40,60 = [1/(1+r)20]V60,60
    Under this approach, the value that should be attached to the life 
of a 40-year old who is exposed to a carcinogen with a 20 year latency 
period and who dies at age 60 is equal to the value of the life of a 
60-year old who dies instantaneously in an industrial accident, with 
the latter value discounted for the 20 years that elapse before the 
carcinogenic victim dies.
    So far, in fact, the discussion suggests that the OMB approach 
actually overestimates the value of the loss resulting from exposure to 
latent risks. The OMB procedure takes V40,40 and discounts 
it back to present value to account for the latency period. \80\ In 
fact, the correct approach would be to discount V60,60 
instead, \81\ which is lower than V40,40 because of the 20 
fewer years of life loss. \82\ As explained later, however, this 
overvaluation is outweighed by the substantial undervaluation that 
results from other elements of OMB's approach. \83\
D. Plausibility of the Model
    The model presented in the previous section relies on two important 
assumptions. First, it assumes that an individual's utility function 
can be expressed as a sum of utilities over the various periods 
comprising one's lifetime. Thus, one's enjoyment of life in one period 
is not affected by the resources available for consumption in prior 
periods, \84\ but only by the resources in that period. \85\ Under the 
model, an individual's utility in one period is not affected by the 
resources available for consumption in prior periods. \86\ So, for 
example, whether an individual was able to afford a quality education 
in a prior period does not affect the utility that she derives from a 
given level of consumption in subsequent periods. This assumption is 
clearly debatable. Indeed, John Broome, in a related con text, terms 
the assumption ``dubious,'' \87\ though he acknowledges that it is 
commonly made in economic analysis. \88\
    Moreover, an individual facing death from cancer may focus on the 
fact of the death and on its cause, without paying particular attention 
to the death's timing. One's willingness-to-pay to avoid the risk may 
then be relatively unaffected by the length of the latency period. A 
number of studies show that individuals of different ages exhibit 
different willingnesses-to-pay to avoid instantaneous deaths, 
suggesting, consistent with the model, that their valuations are indeed 
affected by the number of life-years that they would lose. \89\ It is 
possible, however, that such behavior would not extend to carcinogenic 
risks as a result of the dread associated with such deaths. \90\ As a 
result of the paucity of studies of the willingness-to-pay to avoid 
carcinogenic risks, \91\ it is not possible to make empirically 
grounded claims concerning this hypothesis.
    Second, the model uses a constant discount rate. \92\ So, for 
example, the same rate would be used to discount the utility of living 
20 years in the future as would be used to discount the utility of 
living next year. As Donald Shepard and Richard Zeckhauser put it, the 
model assumes that ``an individual's utility over lifespans of 
different length can be represented as a weighted sum of period 
utilities, the weights declining geometrically with time.'' \93\ 
Shepard and Zeckhauser label this assumption ``heroic.'' \94\
    If, for example, I did not currently value at all the utility of 
living beyond the year 2010, I would be applying an infinite discount 
rate to the utilities that I would derive if in fact I were alive 
beyond that year. The present discounted value of those utilities would 
be zero. There is no mechanism by which I could transfer any life-years 
beyond the year 2010 to someone with a lower discount rate, in return 
for a higher present utility. In contrast, in the case of financial 
flows, if I undervalued relative to the market the stream of payments 
that I would receive on my Treasury bond after the year 2010, I could 
increase my utility by selling that stream of payments at the market 
price. \95\
    There is little attempt in the literature to validate the constant 
discounting feature of the model through experiment or observation. 
\96\ One study of the implicit discount rates reflected in individuals' 
contin gent valuation of the disutilities of various illnesses led the 
authors to question whether the conventional discounting model properly 
describes individual preferences. \97\
    These problems with the assumptions underlying the temporal models 
for the valuation of lives threatened by environmental carcinogens 
should not lead to the conclusion that the models are inappropriate. At 
present, such models are the state-of-the-art in economic analysis. It 
is therefore proper to continue to use them, absent a further 
refinement or an empirical falsification. But as the regulatory process 
seeks to construct appropriate second-best valuations for lives 
threatened by environmental carcinogens, it must pay further attention 
to the plausibility of the assumptions underlying temporal models.
E. Necessary Adjustments
    It is time now to scrutinize with more care some of the assumptions 
made implicitly in the model described in Part I.C. Such scrutiny 
reveals, for several reasons, that one cannot simply take an estimate 
of the value of life from an industrial accident (whether 
V[40,40] or V[60,60]), \98\ discount it, and 
obtain a plausible estimate of the value of life from exposure to an 
environmental carcinogen with a latency period. \99\ Many adjustments 
need to be made for the estimate to be at all meaningful. These 
adjustments all lead to assigning a higher value to the life lost.
    This section examines the principal adjustments that need to be per 
formed. It focuses primarily on differences between the valuations for 
instantaneous and latent harms that have been the subject of empirical 
examination.
    1. Impact of Income on the Valuations of Life.--In the temporal 
model presented in Part I.C, the utility that an individual derives in 
a particular year is a function of the level of resources available for 
consumption that year. Economists have estimated that the elasticity of 
the value of life with respect to earnings (the percentage change in 
the value of life for a 1-percent change in earnings) is approximately 
one. Thus, for example, a 10 percent increase in income would lead to a 
10 percent increase in the value of life. \100\ The impact of income on 
the valuation of life calls into question several of the implicit 
assumptions made in Part I.C.
    a. Increases in Income Over Time.--That model assumes implicitly 
that the valuation of a particular year of life, say the year following 
one's 65th birthday, is independent of the age of the individual making 
the valuation. Thus, for example, u65, the utility of living 
in the year following one's 65th birthday, is the same for both a 40-
year old and a sixty-year old. The only difference related to the 
valuation is that the 40-year old discounts this utility for the 25 
years that it will take until this utility is realized, whereas the 
sixty-year old discounts the utility for only 5 years.
    A correction needs to be made, however, if income adjusted for 
inflation rises over time. In comparing V[40,60] with 
V[60,60], one must account for the fact that by the time the 
40-year old is sixty, her income, in real terms, will be higher than 
the sixty-year old's income is today.
    If income rises in real terms over time, the relationship between 
V[40,60] and V[60,60] becomes different than that 
posited in Part I.C. \101\ Let g be the yearly increase in the 
individual's real income. Then,
    V[40,60] = [(1 + g)/(1 + 
r)][20]V[60,60]
    Thus, V[60,60] now needs to be subjected to two 
adjustments. \102\ First, it is increased by a factor of (1 + 
g)[20] to account for the fact that the years of lost life 
will occur 20 years later for the 40-year old, and that for each of the 
years of life lost, the utility lost 20 years from now to the 
individual who is currently 40 years old will be (1 + g)[20] 
greater than for the individual who is currently 60 years old. Second, 
it is decreased by a factor of [1/(1+r)][20] to discount to 
present value the utilities that the current 40-year old would enjoy 20 
years later. To a first approximation, \103\ the relationship between 
V[40,60] and V[60,60] simplifies as follows:
    V[40,60] = [1/(1 + r--
g)][20]V[60,60]
    For example, if the real discount rate is 3 percent but income is 
rising at a yearly rate of 1 percent in real terms, then the effective 
rate at which V[60,60] would be discounted to arrive at 
V[40,60] would be 2 percent. Moreover, if r and g were 
equal, then V[40,60] and V[60,60] would be equal 
as well. \104\ The increase in the valuation of V[40,60] to 
account for rising real incomes would exactly counteract the decrease 
resulting from the time lag in the enjoyment of utilities.
    Table I presents the changes between 1982 and 1996 in mean and 
median incomes for workers 15 years and over. The figures are presented 
in constant 1996 dollars. \105\

  Table I: Median and Mean Earnings of Workers of 15 Years Old and Over
                       (in constant 1996 dollars)
------------------------------------------------------------------------
                                              Median
                                             Earnings      Mean Earnings
------------------------------------------------------------------------
1996....................................          20,716          27,366
1995....................................          20,541          26,870
1994....................................          19,858          26,668
1993....................................          19,566          26,107
1992....................................          19,521          25,124
1991....................................          19,752          25,110
1990....................................          20,092          25,446
1989....................................          20,667          26,293
1988....................................          20,475          25,755
1987....................................          20,182          25,401
1986....................................          19,564          25,078
1985....................................          18,787          24,169
1984....................................          18,366          23,428
1983....................................          18,275          23,064
1982....................................          18,135          22,760
------------------------------------------------------------------------

    The table reveals that median and mean income grew at compound 
rates of 0.95 percent and 1.01 percent per year, respectively. \106\
    b. Age-Dependent Nature of the Valuation.--A different issue is 
raised by life-cycle changes in levels of income. For example, Donald 
Shepard and Richard Zeckhauser analyze the valuations of a typical 
individual who enters the work force at age 20, sees steadily rising 
income up to age 50, then experiences a small decrease in income until 
age 65, and loses all income as a result of retirement at age 65. \107\ 
The economics literature assumes that people value their lives as a 
function of their current income (and resulting consumption), not on 
the basis of projections of future income. \108\ Richard Zeckhauser has 
labeled this phenomenon as ``temporal myopia.'' \109\
    Shifts in an individual's income across time would not make a 
difference to the valuations of life if borrowing were available to 
equalize the amounts available for consumption. Typically, however, 
there are serious roadblocks to borrowing based on the expectation of 
higher incomes in the future. \110\ And, to the extent that such 
borrowing is possible, for example through credit cards, the interest 
rates are prohibitively high.
    Shepard and Zeckhauser calculate the impact of age on a person's 
valuation of life for two different scenarios, to which they attach 
``Robinson Crusoe'' and ``Perfect Markets'' labels. In both cases, the 
individual supports her consumption from her own income and wealth, and 
has no heirs or dependents. In the Perfect Markets scenario, the 
individual can borrow in the capital markets, in order to support a 
higher level of consumption earlier in life, and can purchase annuities 
to insure against variability in her lifespan. In contrast, in the 
Robinson Crusoe scenario, access to these two markets is unavailable. 
\111\
    The authors show that in the Robinson Crusoe model an individual's 
valuation of life reaches its peak at age 40. A 40-year old values her 
life 2.5 times as highly as a 20 year old (that is, returning to the 
notation previously used, V[40,40] = 
2.5V[20,20]). At first glance, this result might appear 
counterintuitive. After all, the 20-year old loses 20 more years of 
life than the 40-year old. The reason that the 40-year old's valuation 
is higher, however, is that her income is more than three times higher, 
and this effect more than counteracts the shorter remaining life. \112\
    In turn, in the Robinson Crusoe world, the 40-year old values her 
life almost twice as highly as a sixty-year old (V[40,40] = 
1.98V[60,60]). \113\ Two different effects are at play here. 
Most obviously, the sixty-year old has fewer years to live. But another 
factor is depressing the sixty-year old's valuation of her life. Beyond 
age 40, income continues to rise until age 50, but consumption begins 
to fall. The reason is that at age 40, the individual begins to save 
for retirement and therefore has fewer resources available for current 
consumption. Indeed, even though income at age 60 is comparable to 
income at age 40, consumption is about 25 percent lower. \114\
    The situation is more straightforward under the Perfect Markets 
scenario. There, the valuation of life is highest at age 20, and then 
falls continuously through the life cycle. In this model, the 40-year 
old's valuation is about two-thirds higher than that of the sixty-year 
old. \115\ Here, the difference between V[40,40] and 
V[60,60] is attributable exclusively to the different number 
of years of remaining life.
    To the extent that the assumptions underlying the Robinson Crusoe 
model are at least partly realistic, \116\ one needs to worry about the 
procedure described in Part I.C in which the sixty-year old's 
willingness-to-pay to avoid an immediate death, V[60,60], 
was used as a proxy (and then discounted) for a 40-year old's 
willingness to pay to avoid a death 20 years later, 
V[40,60]. Given the levels of income and savings analyzed by 
Shepard and Zeckhauser, using V[60,60] as a proxy for 
V[40,60], as was done in Section I.B, will result in an 
undervaluation of the willingness to pay to avoid death of about 25 
percent (as a result of the lower level of consumption at age 60). 
\117\
    This undervaluation, however, may have decreased over time. Shepard 
and Zeckhauser relied on data from the late 1970's. \118\ Certain legal 
changes since that decade, particularly the end of mandatory retirement 
and the strengthening of protections against age discrimination, are 
likely to have affected the impact of age on income. In particular, it 
is possible that the peak income is received later in life and that the 
assumption that individuals receive no income after the age of sixty-
five is now unrealistic. These changes would result in increasing the 
ratio of the sixty-year old's consumption relative to that of the 40-
year old and thereby diminishing the difference in the valuations of 
V[40,40] and V[60,60] in a Robinson Crusoe 
economy.
    In summary, the discussion in this subsection is presented only to 
illustrate the underlying methodological issues that must be resolved 
to obtain a plausible estimate of the value of life. More work needs to 
be done to determine the plausibility of the Robinson Crusoe model and 
the effects of changes in workplace patterns and legal protections 
since the 1970's.
    c. Distribution of Income Across Occupations.--Individuals who take 
risky jobs generally have lower-than-average income. \119\ Thus, there 
is a problem in extrapolating from the willingness-to-pay studies 
conducted in high-risk occupations to the broader population affected 
by environ mental carcinogens.
    One threshold issue concerns the definition of the population 
affected by the different environmental programs. In principle, for 
every environmental regulation, one could attempt to determine the 
identity, age profiles, and economic characteristics of the affected 
population. One could then construct program-specific valuations of 
life that took into account the distribution of ages and incomes of the 
affected population, as well as of the latency period of the carcinogen 
subject to the regulation.
    There are good reasons why one might not want to undertake such an 
evaluation. First, the informational requirements are likely to be 
daunting. For every environmental program, in addition to estimating 
the number of affected individuals, one would need to determine their 
demographic and economic characteristics. \120\
    Second, an effect of particularized valuations based on levels of 
in come would be to justify, on cost-benefit grounds, more stringent 
regulation when the affected population is wealthier. Such a policy 
would be inconsistent with the central tenet of the increasingly 
influential environ mental justice movement, which calls for 
environmental regulation to be no less (if not more) responsive to the 
needs of communities that are disproportionately poor, or 
disproportionately populated by people of color than to the needs of 
wealthy, white communities. \121\
    As a result, it is reasonable for EPA to use uniform valuations of 
life across environmental programs. These valuations would be based on 
representative characteristics of the population of the United States. 
\122\ Thus, to the extent that the subjects of the empirical studies 
involving industrial accidents have relatively low incomes, an upward 
adjustment in their valuations of life must be performed before 
translating these figures to the environmental context.
    The U.S. Census provides median and mean earnings for all workers 
and for various occupational categories. \123\ The category including 
operators, fabricators, and laborers might be a good proxy for workers 
in risky occupations who are the subjects of empirical studies 
concerning the value of life. In 1996, the median and mean earnings of 
all workers 15 years of age and over were $20,716 and $27,366, 
respectively. \124\ The corresponding figures for operators, 
fabricators, and laborers were $16,883 and $19,981. \125\ Thus, the 
overall median earning is 22.7 percent higher than the median for 
workers in risky occupations, and the overall mean is 36.8 percent 
higher.
    2. Involuntary Nature of the Harm
    a. Comparative Valuations of Voluntary and Involuntary Risks.--
There is an extensive literature suggesting that individuals assign 
greater value to avoiding risks that are thrust upon them involuntarily 
than risks that they incur voluntarily. \126\ As Richard Zeckhauser 
points out, ``this tendency would introduce a downward bias in the 
implicit life valuations of those who voluntarily assume risks.'' \127\
    The risk assumed by individuals who take risky jobs and subject 
themselves to a non-trivial possibility of industrial accidents is 
generally thought of as a risk assumed voluntarily. \128\ In contrast, 
the risk of exposure to environmental carcinogens, for example, as a 
result of toxic air pollution, is generally thought of as involuntary. 
\129\
    As a result, there will be a systematic undervaluation if one takes 
the willingness-to-pay to avoid voluntary harms and imports that figure 
into the context of environmental regulation. Determining the extent of 
the undervaluation, however, is complicated.
    The economics profession strongly favors ``revealed preference'' 
valuations, under which the value assigned to a good can be observed 
through a market transaction. Willingness-to-pay studies of wage 
differentials needed to compensate individuals for accepting a risk of 
death are a prominent example of a revealed preference technique. \130\ 
Revealed preference approaches are poorly suited for determining the 
valuation of involuntary harms because they are based on the existence 
of market transactions, and such transactions are generally seen as 
voluntary. \131\
    Thus, in order to estimate how the valuations of involuntary and 
voluntary risks differ, one needs to resort to a different approach. In 
recent years, a great deal of attention has been devoted to the 
implicit valuations of human life derived from dividing the total cost 
of an environmental program by the number of lives saved. The result, 
for environmental pro grams that do not have significant other 
benefits, is the implicit value that the regulatory program has 
assigned to each life. The range of implicit valuations for regulatory 
programs is enormous, from around $100,000 per life to a number in the 
billions of dollars. \132\ To reach any worthwhile conclusions from 
these implicit valuations, one would need to make the heroic assumption 
that social expenditures in fact are reflective of public preferences.
    Thus, a more promising alternative is to directly question 
individuals about the relative value that they attach to avoiding 
voluntary and involuntary harms. \133\ In the most comprehensive study 
of this type, Maureen Cropper and Uma Subramanian conducted a 
nationwide telephone survey of 1,000 households, asking interviewees to 
compare an environmental program and a public health program designed 
to address a particular risk, such as respiratory illness or cancer. 
\134\ The interviewees were first told that the two programs would cost 
the same amount of money and save the same number of lives, and were 
asked to determine which pro gram was best for society. \135\ Then, 
they were told that the program that they had found less attractive 
would in fact save x times more lives than its counterpart. The authors 
computed the number of lives saved by each program that made the median 
respondent indifferent between the two programs.
    The interviewees were also told to describe some qualitative 
characteristics for the risk addressed by each of the programs, and, 
for each characteristic, to place the risk on a ten-point scale. One of 
these characteristics was the ease with which the risk could be 
avoided, \136\ which is a measure of the risk's voluntariness. \137\ In 
each case, the public health risk was deemed to be more voluntary than 
the environmental risk. \138\
    For the purposes of this Article, the most relevant pair examined 
by the researchers was radon control in homes and a pesticide ban on 
fruit. Radon control, like workplace hazards, is a paradigmatic 
voluntary risk: an individual can avoid the risk by making a monetary 
sacrifice. In con trast, pesticide control, like other environmental 
risks, generally cannot be addressed effectively absent some level of 
social coordination. For this reason, the risk should be regarded as 
involuntary. \139\
    The respondents were asked to assess, on a ten point scale, the 
ease with which the respective risks could be avoided. The mean ratio 
of the ease with which the radon risk could be avoided to the ease with 
which the pesticide risk could be avoided was 1.31. \140\ When 
respondents were told that the two programs would save the same number 
of lives (and cost the same), 72 percent chose the pesticide ban and 
only 28 percent opted for the radon control. \141\ The median 
respondent was indifferent between saving 100 lives by means of the 
pesticide ban and 213 lives through radon control. \142\ Thus, the 
median respondent implicitly found the life saved imperiled by the 
involuntary risk to be twice as ``valuable.''
    More generally, the authors found, across the six pairs of risks 
that they studied, a consistent, statistically significant preference 
for addressing the less voluntary risk. \143\ Moreover, a significant 
minority of respondents--between 20 and 30 percent--always preferred 
addressing the involuntary risk, regardless of how many more lives 
would be saved by transferring the resources to addressing the 
voluntary risk. \144\
    b. Unrepresentativeness of the Population Exposed to Workplace 
Risks.--Another type of adjustment needs to be made when using 
valuations of life in workplace settings as a second-best measure of 
the appropriate value of life for environmental programs. Individuals 
who take relatively risky jobs have a comparatively low willingness-to-
pay to avoid the risk. \145\ Indeed, individuals with higher valuations 
would demand greater wage differentials to take a riskier job over an 
otherwise comparable job that was less risky. The employers, however, 
would not need to pay this higher premium if they could fill their jobs 
with workers who had lower valuations.
    This concept can be illustrated by reference to an auction. The 
employer with the risky jobs offers a low wage premium and sees how 
many workers are willing to take the positions. If it does not fill all 
the vacancies, it offers a somewhat higher premium, and continues this 
process until it is able to fill all the jobs. Any workers who place a 
higher value on avoiding the risk end up not getting the job.
    As a result, the willingness-to-pay valuations derived from the 
study of risky jobs are not the valuations of the mean or median member 
of society. Instead, they are the valuations of a relatively small 
subgroup with a disproportionate tolerance for risk.
    In contrast, environmental risks in general affect a far broader 
sector of society. Moreover, because they are involuntary, there is no 
easy mechanism for individuals to self-select for such risks based on 
their lower-than-average valuations of risk. \146\ Thus, an appropriate 
correction needs to be made when extrapolating from the workplace to 
the environmental arena. No empirical literature, however, sheds light 
on the magnitude of this correction.
    3. Dread Nature of the Harm.--There is also an important difference 
in the nature of deaths resulting from industrial accidents on the one 
hand and from environmental exposures to carcinogens on the other. The 
former occur instantaneously and without warning. The latter often 
occur following a long and agonizing ordeal. As Cass Sunstein pithily 
notes: ``All deaths are bad. But some deaths seem worse than others.'' 
\147\
    A far greater level of social expenditures is devoted to combating 
toxic risks like cancer than risks of instantaneous deaths. A recent, 
admirably comprehensive study by Tammy Tengs and a number of co-authors 
compares the cost-effectiveness of various risk reduction regulations. 
\148\ The authors first determine the cost per life saved by dividing 
the direct costs of the regulation by the number of lives saved. Then, 
they divide this cost per life saved by ``the average number of years 
of life saved when a premature death is averted'' to obtain the cost 
per life-year saved. \149\
    The comparison of costs per life-year saved reveals enormous 
disparities. The median medical and toxin control measures cost $19,000 
and $2,800,000 per life-year, respectively; the overall median is 
$42,000 per life-year. \150\ The authors also found a wide disparity in 
occupational in terventions depending on the nature of the death. The 
median occupational intervention designed to avert a fatal injury costs 
$68,000 per life-year, whereas the median occupational intervention 
involving the control of toxins costs $1,400,000--more than 20 times as 
much. \151\
    But as in the case of the comparison between voluntary harms and 
involuntary harms, one cannot draw strong conclusions from these 
disparities because public expenditures may well not reflect people's 
preferences. \152\ Instead, a more direct measure of the difference in 
valuations is preferable.
    A study by George Tolley, Donald Kenkel, and Robert Fabian at 
tempts to quantify the values attached to the avoidance of unforeseen, 
instantaneous deaths on the one hand and carcinogenic deaths on the 
other. \153\ For each of these risks, the authors define a low 
estimate, a medium estimate, and a high estimate, and present their 
figures in 1991 dollars. For unforeseen, instantaneous deaths, the 
respective estimates, derived from a survey of willingness-to-pay 
studies, are $1 million, $2 mil lion, and $5 million, respectively. 
\154\
    Because, as indicated earlier, there are no willingness-to-pay 
studies estimating the value of life lost from a disease with a long 
latency period, \155\ the procedure used by the authors for estimating 
the value of carcinogenic deaths is more complicated. As their starting 
point, the authors use the estimates for instantaneous deaths. Then, 
for their low estimate, they add a component for the value of the 
morbidity period preceding the death. \156\ This value is derived 
primarily from contingent valuation rather than revealed preference 
approaches. \157\
    As the authors note, this estimate is conservative for two reasons. 
First, it understates the value of morbidity preceding mortality 
because conditions that eventually become fatal are more serious than 
nonfatal, chronic conditions. Second, it does not account for the dread 
aspects of carcinogenic deaths. \158\ The authors account for these two 
components in their medium and high estimates, relying primarily on a 
survey of how individuals compare deaths from cancer to deaths from 
other causes, \159\ and on contingent valuations of periods of severe 
limitations of activity preceding death. The authors' low, medium, and 
high estimates of the value attached to a life threatened by cancer are 
$1.5 million, $4 million, and $9.5 million, respectively. Thus, the 
medium valuation of life in the case of carcinogenic exposure is twice 
as high as the corresponding valuation for an unforeseen, instantaneous 
death. \160\
F. Choice of a Discount Rate
    Parts of the preceding discussion have already hinted as to why the 
choice of the discount rate used in connection with the valuation of 
lives is more complicated than merely picking the discount rate used 
for monetary flows. \161\ I can invest $100 today at a 3.5 percent 
interest rate and have about $200 in 20 years. I cannot invest the 
utility that I derive from living a year at present and obtain, 20 
years later, the utility that I would then derive from living 2 years. 
\162\ Similarly, I can sell the right to get a payment of $200 in 20 
years for a present payment of about $100. I cannot engage in a 
comparable transaction with respect to the utility that I would derive 
from living in 20 years. As W. Kip Viscusi notes, ``One cannot trade 
health . . . across time . . . . If we value our health at 45 but do 
not at 25, then we cannot simply shift health status across time in the 
same way that we would shift monetary resources.'' \163\
    This section undertakes two separate tasks. First, it reviews 
empirical evidence suggesting that, despite the conceptual difference 
between the two, there is no statistically significant difference 
between the discount rate that individuals apply to future health risks 
and the discount rate that financial markets apply to flows of money. 
Second, it criticizes OMB's approach with respect to discounting, 
especially as applied to future health risks, showing that OMB employs 
a rate that is inappropriately high.
    1. Discounting Health Risks v. Discounting Financial Flows.--
Thoughtful analysts have recognized that the discount rates applied to 
financial flows cannot be applied mechanically to the discounting of 
the utility that comes from living in the future. \164\ The most 
extensive empirical work in this area is that of Michael Moore and W. 
Kip Viscusi, who seek to deter mine whether the rates of discount for 
health risks differ from the financial rates of time preference. \165\
    In their most recent article on the subject, Moore and Viscusi 
estimate the implicit discount rate exhibited by workers facing a 
probability of instantaneous death as a result of job risks. \166\ They 
employ a temporal model that assumes that all life years are valued 
equally, \167\ and attempt to determine the relationship between wage 
premiums and job risks as a function of the remaining years of workers' 
lives (and other relevant characteristics). \168\
    For example, consider two workers who have the same life expectancy 
and are otherwise also identical, but who demand different wage 
premiums for undertaking a risky occupation. The worker with the higher 
valuation (who therefore demands the higher wage premium) has a lower 
discount rate and therefore values more highly than her counter part 
the years that she will lose in the future. Alternatively, if two 
workers who have different life expectancies but are otherwise 
identical were to demand equal wage premiums, the worker with the 
shorter life expectancy will be exhibiting a lower discount rate: she 
will be valuing the future years more highly than the other individual.
    On the basis of an empirical study of 1463 workers, Moore and 
Viscusi calculate a real discount rate of 2 percent. \169\ The authors 
note that this real rate ``accords roughly with financial market 
interest rates for the period, once these nominal rates are adjusted 
for inflation.'' \170\ Their results, therefore, ``provide no empirical 
support for utilizing a separate rate of discount for the health 
benefits of environmental policies.'' \171\
    Moore and Viscusi reach this conclusion despite their earlier 
studies, which had found discount rates in the 10-12 percent range. 
\172\ They maintain that the confidence limits around these estimates 
were sufficiently large that the results should be thought of as 
``quite similar.'' \173\ The authors conclude:
    In each case the confidence intervals for the discount rate 
estimates overlap available market rates of return. Moreover, since the 
point estimate of the discount rate falls short of the market rate in 
one case and exceeds the market rate in two cases, we find no clear 
evidence of systematic differences between discount rates for health 
and financial rates of time preference. \174\
    With respect to the control of environmental carcinogens, it is 
relevant that the authors found that education has a large effect on 
the discount rate. In a study that found an overall real discount rate 
of 11 percent, the rates for workers with 8 years of schooling and 
college-educated workers were 15 percent and 5.5 percent, respectively. 
\175\ Thus, to the extent that workers in risky occupations have a 
lower-than-average level of educational attainment, a downward 
adjustment on the discount rate would need to be made. For 
environmental carcinogens, this factor strengthens the authors' 
conclusion that the discount rate exhibited by financial markets is 
appropriate. \176\
    To conclude, it is worth noting that the methodology used to 
estimate the rate at which individuals discount future utilities may 
lead to an overstatement of this rate. Recall that Moore and Viscusi 
assume that all life years are valued equally. \177\ This assumption is 
consistent with the standard approach in life-cycle models, in which 
the utilities derived from living in particular years are a function 
solely of the level of consumption available in those years. \178\ It 
is plausible, however, that such utilities are affected also by one's 
age, and that they fall (for a given level of consumption) with 
increasing age, as a result of the deterioration of one's physical 
capacity.
    For example, at age 50, one might not be able to engage in the full 
range of pleasurable activities that one could have undertaken at age 
30. Thus, the choices on how to convert consumption resources into 
utility at age 50 would be more constrained. \179\ If this were the 
case, part of the lower valuation attributed to later years in one's 
life would result from the lower utility derived from living during 
those years, rather than from discounting to reflect the passage of 
time. As a result, the discount rate estimated from a model in which 
utilities are constant across time (or a function only of the magnitude 
of resources available for consumption) would overestimate the actual 
discount rate.
    2. Selecting an Appropriate Rate.--The choice of a discount rate is 
a key variable in the cost-benefit analysis of many environmental 
regulations. Because the costs of regulatory programs are typically 
borne around the time that the regulations go into effect but the 
benefits, in the case of latent harms, do not accrue for decades into 
the future, the higher the discount rate, the less desirable the 
regulation will seem. Re call, for example, that in the Corrosion Proof 
Fittings case, the present discounted value of the benefits would have 
been approximately ten times greater under a 4 percent discount rate 
than under a 10 percent discount rate. \180\
    The OMB policy on discount rates does not address specifically the 
issue of how to discount health risks. \181\ Thus, these risks are 
discounted at the rates used in the evaluation of government projects 
in general, and government regulation in particular.
    Until 1992, OMB employed a discount rate of 10 percent pursuant to 
a policy contained in its Circular A-4.\182\ In 1992, OMB amended this 
circular to mandate a real discount rate of 7 percent. \183\ OMB 
justifies this rate as ``the marginal pretax rate of return on an 
average investment in the private sector in recent years.'' \184\
    The OMB policy, however, uses a different discount rate for cost-
effectiveness analysis--that is, to determine which of several programs 
yielding identical benefits has the lowest cost in present discounted 
terms. For this purpose, OMB employs the real return on long-term 
government debt--the interest rate on long-term government bonds minus 
the rate of inflation. \185\ In recent years, this figure has 
fluctuated between 3 percent and 4 percent. \186\
    The use of different rates for cost-benefit and cost-effectiveness 
analysis can produce perverse results. For example, consider two 
policies that have the same benefits, which are designed to address a 
future risk. Policy A costs $700,000 at present whereas Policy B costs 
$1,200,000 in 10 years (the figures are in constant dollars). At a 3 
percent discount rate, the present discounted value of the cost of 
Policy B is higher than $700,000, and thus Policy A would be preferred 
on cost-effectiveness grounds. On the other hand, at the discount rate 
of 7 percent, which would apply to cost-benefit analysis, Policy B 
would be more attractive.
    Cost-effectiveness analysis can be used as a short-cut to cost-
benefit analysis where the benefits of two policies are the same. But 
logic compels that the policy with the most attractive cost-benefit 
ratio also be the most cost-effective. This consistency requirement can 
be violated when the discount rates used for cost-benefit and cost-
effectiveness analysis are different. Otherwise a trivial difference, 
say of one dollar, in the benefits of the two policies (so that cost-
benefit analysis rather than cost-effectiveness analysis must be used) 
would alter the choice between two policies that are essentially 
identical.
    More fundamentally, however, there appears to be a growing 
consensus in the economics literature that the appropriate real 
discount rate for government projects is the real return on long-term 
government debt--the interest rate on long-term government bonds minus 
the rate of inflation. The underlying issues are quite complex, but can 
be simplified considerably for the purposes of this discussion. \187\
    When the government undertakes a regulatory project, it is trading 
costs and benefits on behalf of its citizens. As Frank Arnold notes, 
``it then seems reasonable to discount the future benefits to the 
present using the same rate that the affected citizens would use, for 
it is on their behalf that the project is undertaken.'' \188\ This 
rate, often referred to in the literature as the ``consumption'' rate 
of interest, \189\ is generally taken to be the after-tax rate of 
return, adjusted for inflation, \190\ on relatively risk-free financial 
instruments, \191\ such as government bonds. In recent years, the 
economics literature has generally called for the use of a real 
discount rate of 2-3 percent. \192\
    There is a complication, however. Consider initially two environ 
mental projects undertaken directly by the government, one financed by 
taxes and the other by borrowing. In the case of the project financed 
by taxes, the taxes will reduce the consumption of goods, so 
discounting the benefits at the consumption rate of interest is the 
appropriate procedure: individuals are simply trading off less 
consumption now, as a result of the taxes, for future benefits flowing 
from the project. \193\
    The situation is potentially different if the government finances 
the project through borrowing. In a closed economy, with no capital 
flows into the country, the borrowing would displace money available 
for private investment. Because the returns from this investment yield 
taxes, its displacement would produce a loss to the government, equal 
to the fore gone taxes. \194\
    An analytically analogous situation is posed by environmental 
regulation that imposes costs on firms, if these costs cannot be 
shifted to con sumers. In a closed economy, such investments would 
displace other private sector projects. \195\
    The appropriate discount rate under these circumstances is the 
marginal pre-tax rate of return on private investment--the rate used by 
OMB. \196\ After this return is taxed by the government, the remaining 
return must be sufficient to cover the consumption rate of interest. If 
the return on the government's project was lower, social welfare would 
be enhanced by not undertaking the government project and thereby not 
displacing the private investment. \197\
    In summary, traditionally, the literature on cost-benefit analysis 
inquired as to whether the project under consideration displaced 
consumption or private investment. It used the consumption rate of 
interest in the former case and the rate of return on capital in the 
latter. \198\
    In recent years, however, the assumptions underlying this 
bifurcated approach have been called into question. In particular, 
increasing globalization has led to the integration of capital markets 
and the opening of the U.S. economy to foreign investment. \199\ As a 
result, our economy can no longer realistically be viewed as closed. In 
an open economy, the level of taxable investments is unaffected by 
environmental regulation because no capital projects are displaced; the 
government therefore does not lose the corresponding tax revenues. 
Under these conditions, the consumption rate of interest is the 
appropriate discount rate. \200\
    Consistent with this view, the consumption rate of interest is 
currently used as the discount rate by the General Accounting Office 
(GAO) and the Congressional Budget Office (CBO). \201\ Even EPA, which 
must submit its proposed and final regulations to OMB for review under 
Executive Order 12,866, has used a 3 percent discount rate in 
connection with a proposed regulation designed to address lead-based 
paint hazards. \202\ Other agencies, however, have explicitly linked 
their discount rate to OMB's. \203\
G. Estimating the Undervaluation of Lives Under OMB's Policy
    Section E explains the nature of the corrections that need to be 
made to intelligently translate the existing valuations of life from 
industrial accidents to appropriate valuations for environmental harms 
in general and carcinogenic harms in particular. Section F discusses 
how to choose an appropriate rate to discount the utility of life-years 
saved at the end of a latency period. The purpose of this section is to 
obtain a rough estimate of the underestimation of the value of human 
life that results from the OMB approach of taking valuations from 
workplace settings and mechanically reducing them by an inappropriately 
high discount rate over the length of the latency period. Because of 
OMB's role as the arbiter of regulatory analysis under Executive Order 
12,866, this undervaluation has important public policy consequences.
    Once again, the focus is on comparing the valuation of two 
different 40-year olds: one who faces a probability of instantaneous 
death in an industrial accident, V[in'40,40'], and the other who faces 
a probability of death at age 60 from an environmental carcinogen with 
a 20-year latency period, V[in'40,60']. Recall the two factors that 
make V[in'40,60'] smaller. \204\ First, assuming for the sake of 
simplicity that these individuals would otherwise die at age 80, the 
number of life-years lost from the carcinogenic risk is only half. 
Second, the years lost from the carcinogenic harm occur later, and 
discounting is therefore appropriate; at a discount rate of 3 percent, 
the discount factor is 0.55. So, using round numbers, if these two 
corrections were the only relevant ones, V[in'40,60'] would be about 
one-quarter of V[in'40,40'], reflecting reductions of about one-half 
each on the account of the discounting and the difference in the life-
years saved, respectively.
    One should not overlook, however, the corrections on the other 
side, particularly those resulting from the involuntary nature of the 
environmental harm compared to the voluntary nature of the workplace 
harm, and the dread nature of deaths from environmental carcinogens 
compared to the non-dread nature of deaths from instantaneous 
industrial accidents. With respect to the first adjustment, the Cropper 
and Subramanian study, which compares deaths from voluntary and 
involuntary harms, suggests that an adjustment by a factor of two is 
appropri ate. \205\ As to the second adjustment, the study by Tolley, 
Kenkel, and Fabian finds that avoiding deaths from cancer is valued 
twice as much as avoiding instantaneous deaths. \206\
    There is a question about how to combine the results of these two 
studies. It is not completely clear that the correction from the 
Tolley, Kenkel, and Fabian study is based only on the dread nature of 
the harm, and is not also affected by different degrees of 
voluntariness of the harm. If the carcinogenic and non-carcinogenic 
harms compared by these authors shared the same level of voluntariness, 
then it would be reasonable to multiply the two factors of two, and 
conclude that an adjustment by a factor of four is necessary to account 
for the differences in voluntariness and dread.
    In contrast, if the carcinogenic harm considered in their estimate 
is less voluntary than the non-carcinogenic harm, such a correction 
would be excessive. It is clear that the difference in valuations comes 
in part from the morbidity that precedes carcinogenic deaths--one 
component of the dread nature of cancer. \207\ Moreover, nothing in the 
survey on which this study relied for the remainder of the correction 
focused the attention of the respondents on differences in the level of 
voluntariness. \208\ Thus, it seems unlikely that this issue would have 
played a large role in the valuations. \209\
    While further research on these matters is clearly needed, to a 
first approximation it is reasonable in light of the designs of the two 
studies to treat the two factors as multiplicative. Thus, other things 
being equal, the value of avoiding a death from an involuntary, 
carcinogenic risk should be estimated as four times as large as the 
value of avoiding an instantaneous workplace fatality. This upward 
adjustment thus cancels the two downward adjustments resulting from the 
fewer number of life-years lost and the discounting for the latency 
period.
    Moreover, other upward adjustments are necessary as well. \210\ 
First, as indicated above, the median salary for all wage earners is 
about 23 percent higher than the median salary for operators, 
fabricators and laborers, the U.S. Census category most likely to 
contain the subjects of willingness-to-pay studies in the context of 
industrial accidents. \211\ Thus, the valuation of lives threatened by 
environmental carcinogens should be the subject of an upward adjustment 
of another 23 percent.
    Second, economic growth must be accounted for. As a result, based 
on the 1982-1996 period, the discount rate used in making the down ward 
adjustment necessary to account for the fact that the life-years would 
be lost in the future should be reduced by about 1 percent. \212\ Thus, 
accounting for economic growth leads to an upward adjustment of the 
valuation of life of 22 percent. \213\
    As indicated above, the OMB approach is to take the valuations of 
life from workplace settings and discount them for the length of the 
latency period at a rate of 7 percent. \214\ While this approach does 
not reduce the valuation to reflect the smaller number of life-years 
saved, \215\ using a 7 percent discount rate instead of a 3 percent 
rate over a 20-year latency period leads to a downward adjustment of 
the valuation by a factor of about four, rather than by a factor of 
about two. \216\ One would arrive at the same downward adjustment by a 
factor of four, however, if one took account of the smaller number of 
life-years saved and discounted at a 3 percent rate.
    Moreover, the OMB approach neglects to perform any of the necessary 
upward adjustments. Thus, over a 20-year latency period the approach 
may undervalue human life by a factor of about six. \217\ For 
contaminants with longer latency periods, the undervaluation would be 
even greater. \218\
    Finally, this estimate of the undervaluation that results from the 
OMB approach is probably a lower bound. The true figure may well be 
higher because the calculation is based only on those differences 
between instantaneous deaths from workplace accidents and deaths from 
environ mental carcinogens that can be quantified on the basis of 
plausible empirical studies. The preceding discussion has identified 
two additional possible sources of undervaluation, but the 
quantification of the impact of these sources is not possible as a 
result of the lack of relevant empirical analysis. First, and probably 
most importantly, the population exposed to workplace accidents has a 
comparatively low willingness-to-pay to avoid death, as a result of a 
disproportionate tolerance for risk. \219\ Second, to the extent that, 
for a given level of resources available for consumption, the utility 
of being alive at a particular age falls with increasing age, the 
estimates in the literature of the rate at which individuals discount 
their future consumption would be higher than warranted. \220\
H. Recasting the Debate
    It is now worth highlighting that this Article's approach to 
discounting in an intragenerational setting does not pose significant 
ethical issues that are distinct from those raised by cost-benefit 
analysis in general or the valuation of human life in particular. \221\ 
In principle, one could directly ascertain, through willingness-to-pay 
studies, the value of lives threatened by latent harms. Because 
practical problems stand in the way of obtaining such valuations, a 
second-best measure, constructed in part by means of discounting future 
utilities, must be used instead. \222\ The use of such a proxy, 
however, does not give rise to ethical issues other than those that 
might exist if the measurement were done directly.
    The reason for discounting in the case of latent harms is not that 
a regulator or some other outsider determines that life in the future 
is less valuable than life in the present. \223\ Instead, discounting 
simply reflects the fact that the individual who is valuing her own 
life derives less utility from living a year in the future than in the 
present. \224\ Discounting is therefore necessary to provide an 
accurate value of the utility that the individual loses in the present 
as a result of a premature death that might occur in the future.
    At the same time, however, discounting is only one of many 
necessary adjustments that need to be made when valuations in the 
context of industrial accidents are used as the starting point to 
construct a value of human life for the purpose of regulating 
environmental carcinogens. It has no greater call for legitimacy than 
any of the other adjustments analyzed in Part I.E. As the various 
empirical estimates show, it is not even dominant in terms of 
magnitude. \225\ Thus, the failure of the regulatory process to make 
other adjustments, principally as a result of OMB's approach to the 
matter, leads to a substantial undervaluation of human life. \226\
    The preceding discussion views discounting in this intrapersonal 
situation raised by the presence of latent harms as an essentially 
technocratic procedure, which must be undertaken in conjunction with 
other adjustments of the value of life from instantaneous industrial 
accidents, in order to obtain a second-best estimate of the value of a 
human life threatened by latent environmental contaminants. This 
characterization of the problem may give rise to two types of concerns. 
Neither, however, calls for a reevaluation of the ethical status of 
discounting in the case of latent harms.
    First, one might worry that an individual's decisions today do not 
sufficiently protect the person that the individual might become in 
several decades. This perspective views the individual as a succession 
of ``multiple selves.'' \227\ Its concern is that the individual's 
current self would make decisions that undervalued the interests of the 
individual's future self by choosing a discount rate that was too high. 
This formulation gives rise to a typical externality problem and 
converts a technocratic intrapersonal problem into an ethically laden 
quasi-interpersonal one.
    The objection, however, would not be confined to the role that 
discounting plays as a step toward a second-best valuation of human 
life threatened by latent harms. Precisely the same objection could be 
lodged against an attempt to measure this value directly through 
willingness-to-pay studies. One would worry in this context that the 
wage premiums demanded by an individual would be too low because the 
future costs would be borne not by her current self but by a future 
self. The complaint would thus not be attributable to the specific role 
played by discounting but, more generally, to the process of valuing 
life itself. Thus, as a formal matter, the objection does not disprove 
my claim that discounting in an intragenerational setting poses no 
significant ethical issues that are distinct from those raised by cost-
benefit analysis in general or the valuation of human life in 
particular. \228\
    Moreover, such a criticism of revealed preference approaches to the 
valuation of threats to human life would not be confined to latent 
harms. Take, for example, an instantaneous industrial accident in which 
an individual faces probabilities of both death and serious morbidity. 
The individual's current self might not have sufficient empathy toward 
a future self confined to a wheelchair, and might therefore demand too 
low a wage premium.
    More broadly, most decisions that we make have future consequences. 
Every time that we borrow money, we reduce the resources that will be 
available to us in the future. Similarly, every current expenditure 
affects the amount that will be available for future expenditures. To 
find an externality in each decision with future consequences as a 
result of the presence of multiple selves would open the door to 
government regulation of essentially every financial decision that we 
make. Such an approach would therefore constitute a serious affront to 
individual autonomy.
    Interfering with individual preferences in this manner might be 
appropriate in the face of fairly egregious myopia. For example, in the 
somewhat analogous context of social welfare policy, Bruce Ackerman and 
Anne Alstott note:
    The aim of liberal policy is not to second-guess [individuals'] 
choices by supposing that everybody 'ought' to save a lot for 
retirement if they are to maximize their happiness over their life 
times. Its mission is more modest but more fundamental. It is to 
protect elderly citizens against the worst consequences of their 
earlier psychological myopia. The watchword is not utility maximization 
but the assurance of dignified existence in old age. \229\
    It would be unwarranted, however, to attack this Article's approach 
to the problem of latent harms by deploying the machinery of ``multiple 
selves'' analysis. Recall that the approach advocated here is to use 
the after-tax return on riskless investments--a rate that currently 
stands at between 2 and 3 percent. \230\ If this rate were to be 
trumped as insufficiently protective of the future, one would need to 
trump every decision to borrow money at market rates of interest. Then, 
governmental regulation of individual choices in the face of any 
decision with future consequences would become the norm, rather than a 
relatively rare club to be wielded only in the face of egregious lack 
of foresight.
    A different type of objection might be raised to the claim that, in 
the context of latent harms, discounting is a technocratic exercise 
that does not give rise to difficult ethical choices. Different 
individuals have different discount rates, but the social decision of 
how to control latent environmental harms needs to be based on a single 
rate. Thus, in choosing the rate on which to base social policy, one 
needs to make some type of interpersonal comparison. Such comparisons, 
which are highly value laden, are inevitable, even if they are made 
implicitly by using a common rule of thumb such as basing the policy on 
the median discount rate.
    Because environmental quality is a public good, once the government 
acts, individuals will enjoy a uniform level of quality regardless of 
their individual discount rates. Thus, individuals with low discount 
rates would be exposed to more latent harms than they would have 
preferred, and individuals with high discount rates will be exposed to 
harms that are lower than they would have preferred (and consequently, 
perhaps, would have to face too high a current financial sacrifice to 
fund the policy).
    This objection, again, is not particular to the role played by 
discounting future utilities in the case of latent harms, but can be 
raised more generally against both cost-benefit analysis and the 
valuation of human lives. Under cost-benefit analysis, public policy is 
chosen on the basis of the aggregate valuations of the benefits. Thus, 
individuals with particularly high valuations have to accept a policy 
that is laxer than they would have preferred, whereas individuals with 
a particularly low valuation face the opposite problem. Similarly, in 
the case of public policy decisions taken to prevent even instantaneous 
deaths, individuals who value their lives particularly highly (perhaps 
because they are unusually wealthy or have a particularly low tolerance 
for risk) will face a policy that is laxer than they would have 
preferred.
    In summary, to the extent that the valuation procedures discussed 
in Part I give rise to ethical objections, these objections should be 
leveled either against cost-benefit analysis generally or against the 
valuation of life in particular. \231\ If these two techniques survive 
ethical scrutiny, no substantial independent ethical argument should be 
raised against the role played by discounting in an intragenerational 
setting. More generally, it is not defensible to argue that the value 
assigned by the regulatory process to a human life should be 
independent of when an individual's life-years are lost, regardless of 
how the timing affects the individual's own valuation.
                    ii. harms to future generations
    As indicated at the outset of this Article, discounting at a rate 
of re turn comparable to that earned by financial investments turns the 
utilities of generations living a few hundred years from now into a 
negligible present discounted value. \232\ Under such conditions, 
practically no current expenditure for the benefit of relatively 
distant generations could be justified within a cost-benefit framework. 
Because many of the consequences of climate change will not manifest 
themselves for a long time, \233\ the consequences of discounting at 
the rate of return of financial instruments may well be to make any 
plausible expenditure to address climate change fail a cost-benefit 
test.
    The emphasis of many economists on the use of constant discounting 
models stands in stark contrast to the approach of international 
environmental law, which has given its unqualified endorsement to an 
alter native concept to guide intergenerational allocations: the 
principle of sustainable development. Indeed, the concept of 
sustainable development figures prominently in the most important 
agreements concerning international environmental law, \234\ including 
the Stockholm Declaration, \235\ the Rio Declaration, \236\ and the 
Framework Convention on Climate Change. \237\
    Section A shows that models of discounting harms to future 
generations cannot be justified merely through appeals to logic. 
Section B reviews the empirical literature concerning how individuals 
would discount benefits to future generations. The results reveal a 
strong intuition against the use of constant discounting models. 
Section C analyzes the serious shortcomings of discounting models when 
they are used in an intergenerational context. Section D discusses the 
role of opportunity costs; even if future utilities are not discounted, 
expenditures for environ mental projects might nonetheless be postponed 
if other investments can yield higher returns. Section E analyzes the 
principle of sustainable development and shows why it too suffers from 
serious shortcomings. Finally, Section F presents the outlines of an 
attractive theory of intergenerational obligations with respect to the 
environment.
A. Discounting and Appeals to Logic
    Some proponents of discounting the benefits to future generations 
justify their position through appeals to logic, invoking a set of 
absurd consequences that would inexorably follow if discounting was not 
per formed. Their arguments in this regard are unpersuasive.
    1. No Environmental Projects Will Be Undertaken Unless One 
Discounts at a Market Rate.--Some commentators argue that unless 
environmental benefits are discounted at the rate of return on other 
investments, environmental expenditures would always be deferred into 
the future and ultimately would never be undertaken. For example, Susan 
Putnam and John Graham state:
    If a smaller discount rate were to be applied to health than to 
money, it would always make sense to postpone adoption of public health 
programs that invest money now for deferred health improvements. In 
short, society would continually delay risk reduction into the future 
and impose the burdens on future generations. \238\
    Similarly, according to Emmett Keeler and Shan Cretin:
    The discounting of costs but not benefits . . . has a paralyzing 
effect on a decisionmaker. . . . For any attractive program, there is 
always a superior delayed program which should be funded first. The 
result is that no program with a finite starting date can be selected. 
\239\
    The idea behind this position is that, instead of undertaking the 
environ mental program, one could invest the funds in an alternative 
project, watch the investment grow, and then address the environmental 
problem at some time in the future. At this future time, moreover, one 
would engage in the same calculus and decide to postpone the 
environmental expenditure once more.
    Environmentalists have traditionally favored low discount rates be 
cause the costs of environmental protection generally must be borne 
well before the benefits begin to accrue. \240\ Thus, a low discount 
rate makes a given expenditure seem more desirable. The argument that 
no environ mental programs would be undertaken absent discounting at a 
market rate turns this view on its head: lack of discounting becomes 
environ mentally undesirable.
    There are several responses to the justification of the discounting 
of environmental benefits by an appeal to a seemingly logical claim 
that any alternative would lead to the indefinite postponement of 
environmental expenditures. To begin, regardless of whether one 
discounted the environmental benefits at the market rate, it would 
always be desirable to undertake environmental investments that yielded 
a market rate of re turn. So, the claim has to be somewhat more modest: 
that only environ mental investments yielding at least a market rate of 
return would be undertaken. Other environmental projects, in contrast, 
would be delayed forever because they would always look more attractive 
in the future, after the funds that would have been allocated to these 
projects earned a higher rate of return elsewhere. \241\
    There is then a seemingly inescapable logic to discounting environ 
mental benefits at the rate of return earned by other investments. If 
one used a lower discount rate for environmental benefits, 
environmental remediation projects could pass a cost-benefit inquiry 
even though the resources would be best spent elsewhere. The use of a 
discount rate equal to the rate of return on other projects ensures 
that only desirable projects pass a cost-benefit test. \242\
    Even with this reformulation, however, the appeal to logic assumes 
implicitly that the costs and benefits of the environmental program 
will remain unchanged over time; \243\ it is because of this invariance 
that delaying expenditures in order to invest at the market rate of 
return seems attractive. This assumption, however, is inconsistent with 
the structure of many environmental problems.
    For example, in the case of the remediation of hazardous waste 
sites under the Superfund program, the damages caused by the 
contamination are likely to increase significantly over time if the 
problem is left unattended. \244\ If addressed early, a cleanup can 
take place before the hazardous waste has seeped down to an aquifer, 
affecting the quality of the groundwater. At this stage, the cost of 
remediation is comparatively modest and the damage from the 
contamination (and therefore the benefit of undertaking a remediation) 
is comparatively modest as well.
    A few years or decades later, however, the pollutants may have 
worked their way down to the aquifer. \245\ Then, the damage may be far 
higher, since the pollutants could have destroyed important sources of 
drinking water. In turn, the costs of remediation would be far higher 
as well. \246\
    Alternatively, certain environmental problems may become 
irreversible. Once that occurs, any finite expenditure on abatement, no 
matter how high, will fail to remedy the problem. The costs of 
abatement will effectively have increased to infinity.
    Thus, in deciding whether to undertake an environmental project 
now, one cannot merely perform a static calculation of the magnitude of 
costs and damages on a particular date. One needs also to look at the 
problem dynamically and determine how the costs and damages would vary 
over time if the problem were left unattended.
    Consider the following simple example. We could remove some soil 
from the site and incinerate it now at a cost of $110, \247\ and the 
damage from the current contamination is $100, reflecting a small 
increase in the cancer risk of certain residents in neighboring areas. 
If one looked at these figures statically, one would decide, on cost-
benefit grounds, not to undertake the cleanup. If the problem is left 
unattended, however, in 10 years the remediation cost would be $500, as 
a result of the need to pump and treat groundwater, and damage from the 
contamination would be $600. At that point, the cleanup would be 
justifiable on cost-benefit grounds. For any plausible discount rate, 
however, it would be better to spend the $110 upfront to remove and 
incinerate the contaminated soil, thereby addressing the current $100 
damage problem as well as preventing it from becoming a $600 damage 
problem in the future.
    Thus, the situation described above presents three policy options: 
remediate now, remediate later, or do not remediate. It is desirable to 
remediate now not only when the current damage is greater than the 
current cost of addressing this damage, but also when the future damage 
is greater than the future cost of addressing it, and the increase in 
costs in the intervening period is greater than the rate of return on 
other investments. \248\
    These features concerning the structure of environmental benefits 
and costs are no less an issue for climate change than they are for 
Superfund problems. \249\ Certain climate change problems may be 
irreversible, \250\ and in such cases delaying investment in the 
environmental project is not an option. More generally, to make 
intelligent policy choices one needs to know, for example, not only the 
costs and damages at the time that carbon dioxide loadings in the 
atmosphere are doubled relative to some baseline, but also how the 
damage changes over time and the extent to which this damage can be 
reduced by means of particular policy measures. \251\
    In addition, in the case of climate change, there is the 
possibility of catastrophic consequences. \252\ In the face of such 
consequences, risk aversion would justify undertaking projects even if 
their expected return was lower than that of other projects. \253\
    Moreover, the view that before addressing environmental programs we 
should exhaust higher-yielding investments in other areas overlooks 
important difficulties concerning the transfer of resources across 
projects. \254\ Say, for example, that initially the greatest returns 
to a given investment would be to improve the educational system of 
particularly poor developing countries. \255\ Over the first 20 years, 
resources in vested in this manner earn a greater return than if they 
had been placed in an environmental project. Moreover, over this 
period, the costs of environmental remediation are increasing at a rate 
lower than the return on the educational investment.
    After 20 years, however, the calculus changes. The costs of the 
environmental project, though less than the resulting benefits, begin 
to rise at a rate higher than the rate of return to education in the 
developing country. At that point, it is desirable to take the proceeds 
of the educational investment and transfer them to the environmental 
investment.
    There is good reason to be skeptical about the feasibility of this 
transfer. Part of the returns from the educational investment may have 
been consumed by its beneficiaries, and may therefore no longer be 
available to fund the environmental project. Other resources may be 
sunk in long-term investments, such as infrastructure, from which they 
could not feasibly be extricated.
    The transfer of even liquid investments may raise problems. The 
developing countries (or whatever interest group benefits from the 
initial allocation) might object to having the resources transferred to 
address a problem that they attribute to developed countries. Absent 
their con sent, there might be no clear mechanism for effecting the 
transfer. Of course, one could attempt to deal with this problem ex 
ante by contracting between the provider of the funds and the temporary 
recipient. Nonetheless, there are likely to be difficulties enforcing 
the rights under such a contract.
    In summary, the resort to logic must fail. Perhaps the argument 
could be further recast to state that environmental expenditures should 
not be undertaken if other projects have a higher return, if the costs 
and damages associated with leaving the environmental problem 
unattended do not rise too fast, if the potential for catastrophic 
environmental consequences in the absence of immediate measures is 
sufficiently low, and if the difficulties of transferring resources 
across projects are not insurmountable. Then, of course, the claim made 
by supporters of discounting would have lost all their bite and would 
have become essentially tautological.
    2. Failure to Discount Would Lead to the Impoverishment of the 
Current Generation.--A different argument maintains that not 
discounting the value of benefits to future generations makes it 
desirable for us to impoverish ourselves down to subsistence levels for 
the benefit of future generations. As Tyler Cowen and Derek Parfit 
describe the argument (to which they do not subscribe):
    We clearly need a discount rate for theoretical reasons. Other wise 
any small increase in benefits that extends far into the future might 
demand any amount of sacrifice in the present, be cause in time the 
benefits would outweigh the cost. \256\
    The logic is not limited to our generation. In turn, subsequent 
generations face the same incentive, and they become impoverished as 
well. Thus, ``failure to discount would leave all generations at a 
subsistence level of existence, because benefits would be postponed 
perpetually for the future.'' \257\
    There are two serious problems with the argument. First, it assumes 
implicitly that the objective of the decisionmaker is to maximize a 
social welfare function that adds up the interests of all generations. 
Then, deferring consumption now makes additional resources available 
for the future, when more people are around to derive utility from 
them. The question of whether it is appropriate to determine our 
obligations to future generations by reference to an aggregate social 
welfare function can not be resolved as a matter of logic. Instead, it 
must be defended by means of an ethical theory. \258\ The argument that 
all generations will be impoverished unless we discount environmental 
benefits assumes away the hard ethical choice, \259\ and then notes 
that an absurd conclusion would follow absent discounting.
    Moreover, the argument for discounting as a way to avoid 
impoverishment takes a truncated and fundamentally misleading view of 
the manner in which one generation affects the welfare of subsequent 
generations. One component, to be sure, is through its consumption of 
renewable and nonrenewable resources. Thus, one way in which we could 
attempt to impoverish ourselves is by foregoing the consumption of such 
resources.
    But to a large extent the standard of living of future generations 
will depend on current investments in areas such as technological 
knowledge, educational attainment, and productive capacity. \260\ Would 
our generation make those investments if it was wholly deprived of the 
resulting benefit? The answer, presumably, must be negative--that the 
level of effort that we bring to the business of making investments 
with long-term consequences is a function of the benefits that we can 
realize from those investments.
    As a result, a requirement that we impoverish ourselves to leave 
more resources for future generations could actually decrease, rather 
than in crease, the resources available in the future. One might 
respond by saying that our generation has an obligation to provide the 
level of investment that it would have provided under a regime in which 
it could at least share in the fruits of its labors. That may well be a 
plausible argument, but it derives from an ethical judgment. Thus, the 
appeal to logic fails here as well.
    In summary, the failure to discount does not inexorably lead to the 
impoverishment of all generations; it does so only if one makes two 
ethical judgments: that the appropriate social welfare function adds up 
the utilities of all generations, and that the current generation has 
an ethical obligation to invest in a stock of activities affecting 
long-term well-being even if it cannot keep any of the resulting 
benefits.
B. Intuitions About Discounting
    Before proceeding further, it is worth reviewing some empirical 
studies seeking to determine how individuals think about long-term 
discount ing issues. A caveat is appropriate at the outset. If 
individuals in the cur rent generation indicate that they would 
discount the benefits of future generations, one should not 
automatically conclude that the decision reflects an honest ethical 
judgment. Instead, the judgment of these individuals might be 
compromised by self-interest. On the other hand, it would be relevant 
if members of the current generation, despite their self-interst to the 
contrary, were prepared to make social decisions protective of future 
generations. Their generosity might be indicative of an ethical in 
tuition that the benefits accruing to future generations should not be 
discounted very much, or perhaps not at all.
    Most of the empirical studies in this area use a similar 
methodology. Typical of the approach is the questionnaire prepared by 
Maureen Cropper, Sema Aydede and Paul Portney, which states:
    Without new programs, 100 people will die this year from pollution 
and 200 people will die 50 years from now. The government has to choose 
between programs that cost the same, but there is only enough money for 
one . . . . Which program would you choose? \261\
    In their surveys, the authors varied the number of lives that would 
be saved in the future (but kept constant at 100 the number of lives 
saved in the present). They also varied, between 5 years and 100 years, 
the time at which the future lives would be saved. \262\ From the 
responses, they computed the discount rates that the respondents 
assigned to future consequences. The mean of the respondents' discount 
rates was 8.6 percent, 6.8 percent, and 3.4 percent, for time horizons 
of 25, 50, and 100 years, respectively. \263\ A similar study, 
conducted in Sweden, calculated discount rates of about 25 percent, 12 
percent, and 8 percent, for time horizons of 20, 50, and 100 years, 
respectively. \264\
    More strikingly, another Swedish study sought to compare the 
seriousness of a leakage of spent nuclear fuel at times ranging between 
one thousand and almost two million years into the future. Almost one 
third of the respondents did not discount the future consequences at 
all. Among those who did, the mean discount rate attached to an 
accident in the year 10,000 was less than one-hundredth of 1 percent--
practically zero. \265\
    The studies reveal an essentially unanimous opposition to the core 
component of the traditional discounting model: that future 
consequences should be discounted at a constant rate and that the rate 
of discounting should be set by reference to the rate of return on 
particular investments. \266\ Instead, the studies show a consistent 
pattern under which the discount rate falls as the time horizon gets 
longer. \267\ More over, the discount rate with respect to very long 
time horizons is well under the rate of return on investments in 
financial markets. \268\
C. Discounting in a Global Utilitarian Calculus
    Thus, at this point the argument has established that the propriety 
of discounting the benefits to future generations cannot be resolved by 
appeals to logic. Moreover, empirical studies reveal a moral intuition 
opposed, over the long-term, to constant discounting at a rate of 
return comparable to that generated by financial markets. It is now 
time to focus directly on the propriety of discounting.
    Most economic formulations of discounting in an intergenerational 
context posit a social welfare function that aggregates the utilities 
of individuals in the different generations. \269\ For each time 
period, the utility is multiplied by a rate of pure time preference, 
which is a measure of the difference in importance attached to current 
utility as compared to utility in the future. \270\ This rate could be 
zero (the utilities of current and future generations have the equal 
importance) or positive (the utilities of earlier generations are 
privileged). \271\ The goal of the decisionmaker is to maximize the 
aggregate utility function. \272\
    In this framework, the discount rate that maximizes aggregate 
utility can be written as follows:
    d = [rho] + [THETA] g where d is the discount rate, [rho] is the 
rate of pure time preference, [THETA] is the absolute value of the 
elasticity of marginal utility (a measure of the relative effect of a 
change in income on utility), and g is the growth rate of per capita 
consumption. \273\
    The pure rate of time preference, [rho] , reflects the fact that if 
the social welfare function gives less weight to the utilities of later 
generations, then those utilities must be discounted in order to make 
them comparable to the utility of the current generation. The term 
composed of the product of [THETA] and g has a less direct genesis. 
Most economic models of discounting assume that individuals in the 
future will enjoy higher rates of consumption than individuals in the 
present: more specifically, the level of consumption will increase at a 
rate of g. \274\ The models also assume that individuals exhibit a 
declining marginal utility of consumption--that is, that a unit of 
consumption has a greater effect on the utility of an individual with a 
lower level of consumption than on one with a higher level of 
consumption. \275\
    As a result, if later generations will enjoy a higher level of 
consumption as a result of economic growth, social welfare can be 
increased by allocating some additional resources to earlier 
generations. The [THETA] g term represents the amount of discounting 
that must be performed, in order to maximize social welfare, on account 
of the higher levels of consumption of later generations.
    The following subsections deal specifically with each of the two 
components of the discount rate.
    1. Pure Rate of Time Preference.--Exemplifying the position of many 
economists, Victor Fuchs and Richard Zeckhauser take a strong position 
in favor of discounting at the rate of return on financial instruments. 
They maintain:
    Most policy planning discussions assume full altruism--future 
citizens are given equal weight with present citizens--and discount 
solely for the time value of money. Given this ethical premise, the 
value of life years to future generations should be discounted at the 
time-value-of-money rate. \276\
    Terming this approach ``full altruism'' is somewhat contrived. In 
fact, it privileges the interests of the current generation to a very 
large extent.
    Recall that, at a time-value-of-money rate of 5 percent, this 
approach equates the loss of one life today with the loss of a billion 
lives in 500 years. \277\ Stated somewhat differently, assume that the 
population of the world remains constant at about 6 billion people over 
the next 500 years. Under a model of time discounting, what would be 
the maximum current expenditure that could be justified in order to 
prevent the death of every living individual in 500 years? Placing a 
value of life of $5 million, in constant dollars, the maximum current 
amount that we could justify spending now to avert the destruction of 
the human race in 500 years would be $30 million. (At the OMB rate of 7 
percent, this amount would be only about $10!) More conventional 
definitions of altruism would presumably call for a different result.
    Indeed, the discount factors are simply the weights used to compare 
the value attached to the utilities of individuals in different 
generations. A pure rate of time preference of zero is equivalent to 
giving the utility of persons living at different points in time the 
same weight in the social welfare calculus. \278\ Any positive rate 
simply reflects the preferences of a social welfare evaluator to 
depreciate the utilities of future generations. \279\
    The ethically compromised status of discounting for time preference 
at a constant rate can perhaps be best illustrated by the following 
example. Consider an exceedingly simple economy with 100 units of re 
sources. Two individuals, with identical utility functions, live in 
this economy: one from year 1 to year 50 and the other from year 51 to 
year 100. There is no possibility for productive activity; thus, the 
individuals will be able to derive utility only from the existing 100 
units of resources. \280\
    In the absence of discounting for time preference, each individual 
would be allocated 50 units of resources. In the face of a positive 
rate of time preference, however, even a relatively modest one, the 
first individual would get the bulk of the resources. It would be 
difficult to construct an attractive ethical theory that privileged the 
first individual in this manner merely because she lived 50 years 
earlier than the second individual.
    The possible justifications for discounting for time preference at 
a positive rate are not compelling. First, one might posit that if 
discounting for time is appropriate intragenerationally, it should be 
acceptable in tergenerationally as well. There is a fundamental 
difference, however, between the two situations.
    Intragenerational discounting affects the timing with which a 
particular individual decides to expend a fixed amount of resources. It 
is merely a reflection of the individual's preferences and, as 
discussed in Part I.H, does not raise any significant ethical 
questions. \281\ In contrast, intergenerational discounting affects the 
quantity of resources available to each individual.
    In an intergenerational context, one must initially decide how to 
allocate resources to individuals in different generations--a societal 
decision with ethical underpinnings. Then, each individual must decide 
how to time the consumption of resources across her lifetime--a 
personal decision with no ethical ramifications, \282\ other than a 
weak concern about excessive myopia. \283\
    Some economic models that purport to analyze intergenerational 
problems construct their utility function by reference to an individual 
who lives forever. \284\ Models of this type collapse the 
intergenerational and intragenerational aspects of the optimization 
across generations. \285\ Thus, they overlook an important dimension of 
the problem. One simply cannot avoid making ethical judgments about 
intergenerational transfers by mechanically importing to this endeavor 
the intragenerational framework. \286\
    The second possible justification is that time discounting does not 
show lesser regard for future generations because even though it under 
values the interests of a particular generation relative to an earlier 
generation, it overvalues its interests relative to a later one. 
According to this claim, each generation is treated in a comparable 
way: somewhat worse than its predecessors and somewhat better than its 
successors.
    The claim is not an affirmative argument for discounting. Instead, 
its ambition is far narrower: it merely responds to one possible 
argument against discounting. It does not carry the day, however, even 
in this limited respect. Absent economic growth, as would be the case 
for example in economies with high levels of consumption, constant 
discounting for time preference would lead to the progressive 
impoverishment of subsequent generations. Given the choice between 
consuming resources in the present and leaving them for future 
generations one would choose the former because the utilities derived 
from these resources by later generations would be heavily discounted.
    It is true that if discounting actually threatened to impoverish 
future generations additional resources would be allocated to these 
generations as a result of the declining marginal utility of 
consumption, which would make the poorer generations value a unit of 
consumption more. This phenomenon, which is a feature of growth 
discounting at a negative rate of growth, could mitigate some of the 
harshness that would otherwise result. The existence of such a safety 
valve, however, is hardly a ringing endorsement of discounting for the 
pure rate of time preference.
    Yet another argument for discounting for time preference focuses on 
the greater affinity that the current generation feels for itself and 
for the generations that immediately follow it. As Kenneth Arrow and 
several co-authors note, the rate of time preference ``may represent 
discounting for empathetic distance (because we may feel greater 
affinity for generations closer to us).'' \287\ By its terms, the 
statement purports to make a descriptive claim rather than a normative 
judgment: it does not explain why a social welfare function that 
reflects such judgments is ethically defensible. \288\
    Moreover, this argument for discounting is suspect even as a 
descriptive claim, as the empirical evidence discussed in Part II.B 
shows quite clearly. \289\ It is plausible that we would like to favor 
ourselves over future generations, and that with respect to future 
generations we would like to privilege the generations of our children 
and grandchildren, and per haps even great-grandchildren, over 
subsequent generations. \290\ But discounting at a constant rate 
implies that our decreasing regard for subsequent generations continues 
forever. For example, it seems unlikely that, on this account, we would 
value the loss of one billion lives 1000 years no more than the loss of 
one life 500 years from now, as would be the case if we used a discount 
rate of 5 percent. \291\
    Other commentators justify discounting by reference to the 
probability that some catastrophe in the future will result in the 
destruction of human civilization. \292\ The point then is that if we 
are not sure that a future generation will exist, we should allocate 
more resources to earlier generations, which are more likely to be 
around to enjoy the re sources. This argument could well justify 
discounting at a constant rate, but it is very unlikely that the rate 
would be more than infinitesimal. \293\
    Also embedded in the claim is an ethical issue. To some extent, the 
survival of humanity is imperiled by actions of our generation, and of 
a few generations immediately preceding ours. The consequences of 
nuclear war are one such example. Over the long run, climate change 
itself may result in a catastrophic scenario. \294\ If we are 
contributing to the probability of humanity's extinction, should we 
then invoke this possible outcome as an argument to allocate more 
resources to ourselves? A quite plausible principle is that the current 
generation should not benefit in this manner from its externalizing 
behavior.
    Finally, time discounting is sometimes justified on the grounds 
that over time some kind of countermeasures or cures for environmental 
problems may be devised. \295\ If, indeed, there were a scientific 
basis to support such an assumption, a welfarist framework would call 
for reducing the harm by the probability that ultimately the harm will 
not in fact accrue. To the extent that the harm was potentially a 
catastrophic one, however, risk aversion would mitigate that reduction. 
\296\ More fundamentally, it would be an exceedingly unusual 
coincidence if the probability that an environmental problem would 
self-correct just happened to equal the interest rate on financial 
instruments for every problem and for every length of time. \297\ Thus, 
in its general formulation, this argument for discounting must be 
rejected as devoid of any factual basis. \298\
    In summary, the arguments for discounting as a result of the pure 
time preference are not compelling. \299\ The confusion surrounding the 
issue stems, at least in part, from equating intragenerational 
discounting, which ought not to be considered particularly 
controversial, \300\ with in tergenerational discounting, \301\ which 
raises a different set of issues. \302\ To conclude, it is worth noting 
that even though discounting for time preference is a relatively 
standard technique in economics, there is a long and respectable 
tradition, traced to an article published in 1926 by Frank Ramsey, that 
rejects such discounting in intergenerational contexts. \303\
    2. Growth in Levels of Consumption Over Time.--It is time to turn 
to the question of discounting as a result of the growth in levels of 
consumption over time. Recall that the argument in favor of such 
discounting rests on the predicted additional wealth of future 
generations and the decreasing marginal utility of consumption. \304\ 
Given these conditions, growth discounting leads to the maximization of 
the social welfare function. \305\
    Before evaluating the argument for such discounting, it is worth 
pausing to consider the magnitude of what is at stake. As explained 
above, the discount rate for growth that maximizes social welfare is 
the product of g, the growth rate of per capita consumption, and 
[THETA] , the absolute value of the elasticity of marginal utility. 
Arrow and his co-authors indicate that most empirical estimates of this 
elasticity place it in the range between one and two; thus they use the 
mid-point, 1.5, in some of their calculations. \306\ With respect to 
long-term per capita growth, the central estimate of the 
Intergovernmental Panel on Climate Change placed it at 1.6 percent. 
\307\ Thus, the rate of discount for growth would be 2.4 percent. This 
amount is far from inconsequential. It implies, for example, that we 
would be indifferent between saving one life now and 10.7 lives in 100 
years, or between saving one life now and 141,247 lives in 500 years.
    This type of discounting gives rise to two important concerns. 
First, to the extent that subsequent generations are wealthier, they 
will value the benefits of environmental protection more highly. The 
standard economic models calculate the environmental damage on the 
basis of the valuation of the current generation: economic growth 
implies that later generations will have higher valuations. \308\ 
Standard estimates of the benefits of climate change measures include a 
reduction in the loss of lives. \309\ As shown above, the elasticity of 
this valuation with respect to levels of consumption is approximately 
one. \310\ Thus, this valuation should be expected to rise at the rate 
of economic growth. \311\ Similarly, valuations of environmental 
amenities and natural resources are closely linked to levels of income, 
\312\ and will rise with rising income. \313\ If the valuation of all 
the components of the damage of climate change in creased at the rate 
of economic growth, this factor would either completely cancel out any 
discounting as a result of greater wealth (when [THETA] is equal to 
one), or greatly reduce the extent of such discounting (when [THETA] is 
somewhat greater than one).
    More fundamentally, the growth discounting account assumes 
implicitly that the benefits of environmental activities are 
distributed in the same manner as the costs. Then, because the benefits 
accrue to individuals who are wealthier than those who bear the costs, 
the beneficiaries have a lower marginal utility of consumption, and 
discounting is necessary to maximize social welfare. This implicit 
assumption is highly questionable. Most studies of the impact of 
climate change show that the damages will be suffered 
disproportionately by individuals in poor developing countries: 
Bangladesh, for example, is likely to be particularly affected by sea 
level rises. \314\ In contrast, the contribution to the global warming 
problem lies to a large extent with the developed countries, and 
financial responsibility for mitigation measures will be borne 
primarily by these countries. \315\
    Currently, the United States and Bangladesh have per capita gross 
national products (GNP) of $26,980 and $240, respectively. \316\ The 
figures differ by a factor of about 112. It is quite unlikely that in 
100 years or so Bangladesh and the United States will have the same per 
capita GNP. Thus, to the extent that the United States is paying for 
the environ mental measures and Bangladesh is benefiting from them, the 
kind of growth discounting contemplated in the standard economic models 
is clearly inapposite. In order to maximize the social welfare 
function, a lower factor would have to be used to reflect the fact that 
even when the benefits of climate change measures begin to accrue, 
Bangladesh will be poorer than the United States.
    It is quite possible that even in a hundred years Bangladesh's per 
capita GNP, in constant dollars, will be lower than the per capita GNP 
in the United States is now. Then, in order to maximize the social 
welfare function, one would have to apply a negative discount rate. 
Such a rate would justify spending more now than the benefits in the 
future because the benefits in the future would accrue to individuals 
with lower levels of consumption, and hence higher marginal utilities 
of consumption.
    One might object to this line of argument on the grounds that 
citizens of the United States have no obligation to improve the lot of 
Bangladesh. Such a position is certainly debatable, but it resides 
outside the domain of utilitarianism, where the concept of discounting 
future utilities has its intellectual home. In the example described 
above, where in constant dollars the per capita GNP in Bangladesh in 
100 years is lower than the current per capita GNP in the United 
States, a negative discount rate does maximize the social welfare 
function and is the policy that should be chosen on utilitarian 
grounds.
    This discussion points to an obvious anomaly. If we are prepared to 
be serious about utilitarianism in the intergenerational context, why 
do we not take it seriously in the intragenerational context? Doing so 
would imply a large increase in the aid from developed to developing 
countries, where the marginal utility of consumption is far higher as a 
result of the much lower per capita GNP.
    One can, to be sure, construct a plausible ethical theory under 
which greater current foreign aid is not compelled but mitigation 
measures for climate change are. The depressed economic status of 
developing countries might not be the direct consequence of any actions 
by the developed countries, although the issue is not uncontroversial. 
In contrast, any damages that might affect developing countries as a 
result of climate changes are caused to a large degree by energy 
consumption patterns in the developed countries. \317\ So, the 
developed countries might have an obligation to mitigate a problem that 
they caused and yet not have a similar obligation to reduce a level of 
inequality that they did not cause.
    It is difficult, however, to reconcile such an ethical theory with 
welfarist approaches. Whether the lower level of per capita GNP in 
developing countries is caused by climate change or not, it still 
results in a higher marginal utility of consumption. If the purpose is 
to transfer re sources to where they will produce the greatest increase 
in utility, the cause of the inequality simply does not matter. 
Moreover, the selective rejection of utilitarianism to justify the 
current low levels of foreign aid would call into question its 
selective invocation to justify discounting in some fashion the 
benefits to future generations of environmental measures. \318\
    Alternatively, one might argue that utilitarianism calls for 
maximizing only the aggregate social welfare function of the relevant 
polity. With respect to the analysis of foreign aid, the relevant 
polity might be each individual nation. Foreign aid would then be 
justified only to the extent that donors in a wealthy country derive 
utility from helping recipients in a poorer country, not on the basis 
of the utility derived by the recipients.
    In the context of climate change, given the global nature of the 
problem, it would be paradoxical to decide on a nation's obligations 
merely by reference to that nation's aggregate social welfare function. 
Indeed, the standard economic formulation of discounting aggregates 
across a global social welfare function and no commentator that I am 
aware of argues for a more constrained view. Perhaps one could 
construct a defensible theory under which the relevant polity changed 
with the nature of the problem, but it could not be derived solely from 
utilitarian principles and would have to be grounded on some 
nonconsequentialist ethical norm.
    Growth discounting also inappropriately merges the decision 
concerning the desirability of a project with distributional 
considerations. Under cost-benefit analysis, projects are undertaken 
based on the aggregate willingness-to-pay of the beneficiaries. Because 
the government undertakes large numbers of projects and regulatory 
initiatives, the losers with respect to one governmental intervention 
may well become winners with respect to another. It therefore does not 
make sense to suffer social welfare losses with respect to an 
individual project simply to obtain a more desirable distribution of 
resources.
    After aggregating all projects, however, the set of policies that 
maximizes net social welfare across the population as a whole might 
impose significant net costs on a subset of the population. To the 
extent that such inequities persist, the government can effect 
redistribution intragenerationally through the income tax system. Such 
an approach generally gives rise to fewer distortions and is therefore 
more desirable than compromising the social welfare consequences of 
individual projects. \319\
    In contrast, under growth discounting, the amount invested in an 
environmental project will be less than that justified by reference to 
the aggregate willingness-to-pay of the beneficiaries. Thus, the 
efficiency of each individual project would be compromised in order to 
effect redistribution.
    It is true, of course, that intergenerational redistribution is 
more difficult to achieve than its intragenerational counterpart. For 
example, if we allocate more to the current generation in order to 
improve the aggregate social welfare but feel that such a policy 
imposes net costs on future generations, there is no easy means to 
compensate future generations. In theory, we could tax ourselves to 
create a trust fund that future generations could tap into at 
predetermined times, but there is a high likelihood that the money 
would become an attractive target in the future for our generation, or 
for intervening generations. Thus, the durability of the arrangement 
over the long-term could not be assured.
    A different problem would arise if social welfare were to be 
maximized by allocating resources to future generations in a manner 
that imposed unacceptably high net costs on the current generation--the 
phenomenon that underlies the growth discounting approach. There is no 
obviously desirable mechanism by which we could tax future generations 
in order to compensate ourselves. \320\ While we could consume 
suboptimally high levels of renewable and nonrenewable resources, such 
consumption imperils social welfare in a way that is avoided by 
redistribution through the tax system. A better alternative is to 
finance measures that benefit the current generation through long-term 
debt, the burden of which would eventually fall on future generations.
    These difficulties suggest that the benefits of intragenerational 
redistribution through the tax system will not be fully available 
intergenerationally. Nonetheless, these difficulties do not necessarily 
call for conflating the resource allocation and distribution inquiries, 
as growth discounting does. Instead, one needs to ascertain, as one 
typically does in the intragenerational context, whether bifurcating 
the inquiry and per forming the redistribution through a different 
mechanism would reduce undesirable distortions.
D. Role of Opportunity Costs
    My argument should not be read to imply that discounting has no 
role to play in the intergenerational context. For example, consider a 
harm that could be averted either now or in the future. In this 
scenario, assume that if the problem were addressed in the future, 
funds could be invested now in other projects and then transferred at a 
later time to avert the harm. The most that it would be worth paying to 
avert the future harm now is the present discounted value, at the rate 
of return generated by these alternative projects, of the amount that 
would be needed if the problem were addressed in the future. Regardless 
of the nature of our obligation to future generations, it makes no 
sense to spend more when we can achieve the same result for less.
    A similar result could attach even to an irreversible environmental 
problem. Consider an environmental harm that can be remedied only 
through a current expenditure: if the problem is not addressed now, it 
cannot be successfully addressed in the future. Even if the objective 
were to transfer resources to a future generation, it might nonetheless 
be preferable to leave the problem unattended if alternative 
investments would yield a higher rate of return. Then, the future 
generation would have to face the environmental harm but would enjoy, 
for example, the fruits of greater investments in technological 
innovation. \321\
    The substitutability of environmental and non-environmental 
benefits can be seen most clearly from the vantage point of a 
utilitarian perspective. The utilitarian objective is to deploy 
society's resources in whatever way increases aggregate utility by the 
largest amount, not to prevent specific environmental harms. Suppose 
that aggregate utility would increase by transferring current resources 
to a future generation. If a given investment of resources would yield 
a larger return in a non-environmental project, the utilitarian 
calculus would favor this investment over an environmental investment 
yielding a lower return.
    One might conclude at first glance that my disagreement with 
advocates of discounting the utilities of future generations is only 
semantic. It might appear, indeed, that taking account of opportunity 
costs in deciding whether to undertake environmental projects for the 
benefit of future generations leads to the same results as discounting 
the utilities of those generations.
    Indeed, consider the following two procedures. Under the first 
procedure, one undertakes any project for which the current cost (in 
fore gone utility for the current generation) is greater than the 
present discounted value of the utilities of the future generation that 
the project is intended to benefit. Under the second procedure, one 
does not discount the utilities of future generations, but undertakes 
the project only if the rate of return of the investment is greater 
than the rate of return of alter native investments (otherwise, even if 
resources are worth transferring into the future, the alternative 
investments will be preferable).
    As is almost self-evident, these two procedures will yield the same 
results in certain cases. These procedures, however, are conceptually 
different and can yield different results in other cases.
    Most importantly, discounting the utilities of future generations 
is a means for determining our obligations to those generations. It is 
the objective function of a specific ethical theory. In contrast, 
paying attention to opportunity costs does not imply the choice of any 
particular theory. It is simply a way of ensuring that society furthers 
its chosen theory, whatever that theory may be, in the most cost-
effective way possible.
    For example, suppose that a societal goal is in fact to prevent 
certain types of irreversible environmental harms, as may be the case 
under formulations of the principle of sustainable development. \322\ 
We would still defer expenditures for environmental projects if 
alternative uses of the funds could have a higher rate of return over a 
given period. But at the point at which such a harm was about to become 
irreversible, we would undertake the environmental expenditure to 
prevent this outcome regardless of the rate of return on other 
projects. Moreover, in deciding how long to delay the expenditure, one 
would have to consider whether funds invested in other projects could 
easily be transferred at a later time to the environmental project. 
\323\ In contrast, if the social objective were to maximize a 
discounted social welfare function, the expenditure would never be 
undertaken if the present discounted value of the benefits was lower 
than the costs.
    Similarly, under a corrective justice approach, countries 
responsible for environmental degradation would have an obligation to 
mitigate the adverse effects of such degradation. It would nonetheless 
be appropriate to delay expenditures if alternative interim investments 
were to yield a higher rate of return. But, at some point, the 
mitigation would have to be tackled. In contrast, the approach of 
discounting the utilities of future generations could provide a 
different prescription altogether.
E. Intergenerational Obligations and Sustainable Development
    There is virtual agreement that the central function of the 
principle of sustainable development is to guide intergenerational 
allocations. \324\ Because this principle is strongly endorsed in 
international environmental law agreements, \325\ it is important to 
ascertain the extent to which it sets forth an attractive theory of 
intergenerational obligations. \326\
    Before turning to this task, however, one must at least attempt to 
convert what is still quite an amorphous concept, which suffers from 
the lack of a uniform definition, \327\ into a tool that can actually 
guide decisions. The starting point to most discussions in this area is 
the language in Our Common Future, the 1987 report of the World 
Commission on Environment and Development (often referred to as the 
Brundtland Re port, after its chair, the then Prime Minister of 
Norway). \328\ This report defines sustainable development as 
development that ``meets the needs of the present without compromising 
the ability of future generations to meet their own needs.'' \329\ This 
statement, however, leaves open wide room for disagreement.
    Perhaps the two most influential perspectives on what obligations 
to future generations are encompassed by the principle of sustainable 
development are those of Edith Brown Weiss and Robert Solow, which are 
rooted in the traditions of international law and of economics, 
respectively. \330\
    Weiss equates sustainable development with intergenerational 
equity, which she defines by reference to three principles. \331\ 
First, the principle of conservation of options requires each 
generation to preserve the natural and cultural resource bases so that 
the options available to future generations are not unduly restricted. 
Second, the principle of conservation of quality requires each 
generation to prevent a worsening of the planet's environmental 
quality. Third, the principle of conservation of access requires each 
generation to provide its members with equitable rights of access to 
the legacy of past generations, and to conserve this access for the 
benefit of future generations. \332\
    In contrast, according to Solow, sustainability requires that each 
future generation have the means to be as well off as its predecessors. 
He gives content to this principle by proposing a modification to the 
traditional measure of a nation's economic activity. From Net National 
Product (NNP)--Gross Domestic Product (GDP) minus the depreciation of 
fixed capital assets--he would subtract the value of expended 
nonrenewable resources and environmental assets like clean air and 
water. \333\ Solow argues that each generation must use its 
nonrenewable and environmental resources in a way that does not detract 
from the ability of future generations to have a similar standard of 
living. \334\ He admits that certain unique and irreplaceable 
resources, like certain national parks, should be preserved for their 
own sake, \335\ but maintains that the consumption of non-unique 
natural and environmental resources ought to be permissible as long as 
they are replaced by other resources such as equipment or technological 
knowledge.
    The two formulations share important characteristics. First, they 
define the primary obligation to future generations in terms of a 
constraint that specifies how much must be left to a subsequent 
generation. \336\ Second, Weiss and Solow would both allow some level 
of destruction of most natural resources, as long as future generations 
are compensated in an other way, such as by technological development. 
\337\ Third, they both regard certain natural resources as 
irreplaceable and would require that such resources be protected for 
subsequent generations. \338\
    In essence, then, under both formulations, every generation must 
provide the subsequent generation with the means to do at least as well 
as it did. So, for example, sustainable development would be consistent 
with the current generation seeking to maximize its own utility, as 
long as this maximization is subject to a constraint resulting from the 
need to leave sufficient resources to future generations.
    There are, of course, daunting challenges ahead in providing 
further specificity to the principle. For example, additional work 
needs to be done to determine how to value the increase in knowledge or 
the negative long-term environmental effects of economic activity. 
\339\
    Also, throughout history, there has been a progressive increase in 
standards of living. Should the constraint defining one generation's 
obligation to its successors thus provide for a progressive increase in 
well-being, so that this pattern may continue? On what basis would that 
in crease be determined? What would be the ethical underpinnings for 
such a requirement?
    Moreover, the link between sustainable development and population 
policy is not well articulated. \340\ The population in any generation 
is a function of decisions of prior generations. \341\ For example, one 
might argue that if the current generation's actions were to lead to an 
increase in population, it would have an obligation to provide 
additional resources so as not imperil the level of well-being of an 
average person in the next generation. \342\
    Many commentators also believe that the concept of sustainable 
development contains a precautionary principle, which prescribes that 
scientific uncertainties be resolved in favor of environmental 
controls. \343\ As discussed above, there is some possibility that 
catastrophic events would materialize in the future if the climate 
change problem is left unattended. \344\ The precautionary principle 
would presumably call for avoiding such consequences. In fact, given 
that technological advances may greatly contribute to the wealth of 
future generations, it may be that the precautionary principle will do 
most of the work in justifying climate change expenditures.
    Left unanswered in the academic discussions concerning the 
precautionary principle, however, are important questions about its 
scope. For example, what probability of a catastrophic event is 
sufficiently high to trigger the operation of the principle? Similarly, 
what is a sufficiently harmful consequence? \345\ Spending the 
resources needed to avoid a low-probability, catastrophic outcome might 
interfere with the ability to make resources available to subsequent 
generations. How should this tradeoff be resolved?
    This background on the scope of the principle of sustainable 
development is sufficient to permit an evaluation of the extent to 
which the principle can form the basis for a desirable theory of 
intergenerational obligations with respect to environmental matters. At 
a very general level, the principle appropriately underscores that the 
current generation, which has control of vast decisionmaking authority 
concerning the resources that will be available in the future, should 
not simply ignore the interests of future generations.
    Beyond this level of generality, however, the principle suffers 
from severe shortcomings. Most importantly, in practice it is likely to 
impose too limited an obligation on the current generation. Say, for 
example, that the current generation, for a comparative small 
sacrifice, can prevent a very large harm to a subsequent generation. 
Perhaps an expenditure of only $1 at the present would lead to averting 
harm of several hundred billion dollars in 100 years. Even if the 
future benefit were discounted at a high level, the present discounted 
value of the benefit would greatly exceed the corresponding cost.
    The principle of sustainable development, however, would not 
require this expenditure if the subsequent generation would, despite 
the harm, be better off than the current one. Thus, if the next hundred 
years can be expected to bring sufficiently rapid technological 
progress, the environmental expenditure would not need to be 
undertaken. In fact, because the rate of technological progress is 
currently so high, the principle of sustainable development could in 
fact remove from the current generation any obligation to undertake 
environmental measures for the benefit of future generations.
    Conversely, while this issue is of less direct practical 
importance, the principle of sustainable development could, in theory, 
demand excessive sacrifice from the current generation. Say, for 
example, that absent some intervention, the generation living 100 years 
from now would be $1 poorer than the current generation, and that for 
an expenditure of several hundred billion we could confer upon that 
generation an extra $1. The principle of sustainable development would 
require the expenditure, despite the obvious waste in resources. \346\
    These shortcomings of the principle of sustainable development 
serve to underscore the relative attractiveness of utilitarian 
approaches. Consistent with such approaches, in an intragenerational 
context, the social decisionmaker would seek first to undertake all 
projects that have desirable cost-benefit ratios. Then, if the 
resulting distribution of re sources was unattractive, the social 
decisionmaker would require redistribution. In a utilitarian framework, 
redistribution is justified as a result of the fact that poorer 
individuals have a higher marginal utility of consumption; total 
utility is therefore increased by redistributing from rich to poor. 
\347\
    The costs of effecting redistribution (whether in the form of 
transaction costs or perverse incentives) play an important role in 
determining how much redistribution is socially desirable. Indeed, 
sufficiently high costs could dominate the benefits that would come 
from transferring re sources from wealthier individuals, with a lower 
marginal utility of consumption, to their poorer counterparts.
    In an intergenerational context, the inquiry could be essentially 
the same: pick projects with good cost-benefit ratios and redistribute 
as guided by reference to the relative marginal utilities of 
consumption and by the costs of effecting redistribution. In contrast, 
the principle of sustainable development requires expenditures with 
unattractive cost-benefit ratios, fails to require expenditures with 
attractive cost-benefit ratios, and is oblivious to the costs of 
effecting redistribution.
F. Toward a Theory of Intergenerational Obligations
    The articulation of a complete theory of intergenerational 
obligations with respect to environmental matters is beyond the scope 
of this Article. Nonetheless, the preceding discussion can be 
crystallized into a set of principles setting forth the backbone for 
such a theory.
    First, the mechanical importation of discounting for time 
preference at the rate used intragenerationally is wholly unjustified: 
how one individual decides to time her expenditure of a fixed set of 
resources over her lifetime is a fundamentally different question from 
how society allocates a given set of resources among individuals in 
different generations. \348\ Intergenerationally, discounting for time 
preference unjustifiably undervalues the interests of future 
generations.
    Second, discounting for economic growth is also fraught with 
problems. Most importantly, the formula used in the standard economic 
models ignores the fact that the primary contributors to international 
environmental measures are far wealthier than the primary beneficiaries 
of such measures. In fact, even in the future, when the benefits of 
measures undertaken now actually accrue, these beneficiaries are likely 
to be poorer than the contributors to such measures are now. Under 
these circumstances, any positive discounting for economic growth would 
be inappropriate. To the contrary, given the decreasing marginal 
utility of consumption, a utilitarian framework would call for 
environmentally protective measures even if the current costs are 
somewhat greater than the future benefits. \349\
    Third, a theory of intergenerational obligation must play close 
attention to opportunity costs. Even though it is inappropriate to 
discount the utility functions of future generations, it does not make 
sense to under take environmental expenditures for the benefit of 
future generations if the investment can yield higher benefits 
elsewhere, and if no ethical obligations are compromised by delaying 
expenditures.
    Fourth, consistent with the principle of sustainable development, 
\350\ an attractive theory of intergenerational obligations should seek 
to prevent catastrophic harms and the destruction of unique natural 
resources. Admittedly, however, the dividing line between the use of 
everyday renewable and nonrenewable natural resources, and the 
destruction of unique resources may be hard to draw in particular 
circumstances.
    Fifth, proper attention needs to be given to distributional issues. 
As in the intragenerational context, one should not compromise the 
efficiency of a particular environmental policy in the name of 
distributional concerns, but one should be prepared to redistribute if 
the aggregate effects of such policies lead to unattractive 
distributional outcomes. In the intergenerational context, the 
mechanisms for redistribution are more cumbersome, \351\ but the issue 
nonetheless merits attention.
    Sixth, an attractive theory of intergenerational obligations is 
likely to contain a corrective justice component. Within a traditional 
utilitarian framework, one cannot explain the moral intuition that 
industrialized nations have a responsibility to mitigate the adverse 
effects of climate change, but not to effect massive current 
redistributions of wealth to poorer countries. \352\ To the extent that 
the current pattern of expenditures and concern on the part of 
industrialized countries derives from a moral intuition concerning 
differential levels of responsibility for the two situations, \353\ 
this intuition should be an element of a theory of intergenerational 
obligations.
Conclusion
    This Article shows that the lack of a proper understanding of 
discounting has led to bad regulatory decisions in the case of latent 
harms and to an undesirable skewing of the debate in the case of harms 
to future generations.
    If two individuals of the same age are exposed to a latent harm 
from an environmental carcinogen and to a risk of instantaneous death, 
respectively, the person exposed to the carcinogen stands to lose fewer 
life-years and to lose them later in life. Discounting is an 
appropriate technique for taking account of the latter factor. The use 
of discounting, however, will lead to misleadingly low valuations of 
life unless it is coupled with significant upward adjustments to 
account for the dread and involuntary nature of environmental 
carcinogens, as well as for higher income levels of the victims. 
Unfortunately, the regulatory regime has failed to recognize the need 
for such adjustments.
    With respect to harms to future generations, the Article shows that 
the use of discounting is ethically unjustified. It privileges the 
interests of the current generation without a defensible foundation.
    The misguided approach to discounting in the two contexts may be 
attributable in part to a fairly generalized failure to take proper 
account of the differences between the cases of latent harms and harms 
to future generations. For the former, discounting raises no 
significant ethical objections that are independent of those that could 
be raised against cost-benefit analysis in general and the valuation of 
human lives in particular. For the latter, in contrast, discounting 
gives rise to daunting ethical issues.
    This Article aims to effect two important public policy changes. 
With respect to latent harms, it seeks to provide an impetus for 
correcting the substantial undervaluation of environmental benefits 
that comes from the regulatory system's approach of mechanically taking 
valuations of life from the workplace setting and discounting them at 
an artificially high rate, without performing any of the necessary 
upward adjustments. With respect to harms to future generations, it 
seeks to move the debate away from discounting and toward more 
attractive alternatives.
                               footnotes 
    1. Exec. Order No. 12,866, 3 C.F.R. 1993, p.638, reprinted in 5 
U.S.C. 601 (1994). This order replaced a similar Executive Order, 
promulgated by President Reagan. See Exec. Order No. 12,291, 3 C.F.R. 
1981, p.127, formerly in 5 U.S.C. 601. Given its legal status, however, 
it cannot displace contrary statutory provisions.
    For discussion of the practice of OMB review, see Environmental 
Policy Under Reagan's Executive Order: The Role of Benefit-Cost 
Analysis (V. Kerry Smith ed., 1984); Thomas O. McGarity, Reinventing 
Rationality: The Role of Regulatory Analysis in the Federal Bureaucracy 
(1991); Richard H. Pildes & Cass R. Sunstein, Reinventing the 
Regulatory State, 62 U. Chi. L. Rev. 1 (1995).
    2. Currently, a bill sponsored by Senator Carl M. Levin, Democrat 
of Michigan, which enjoys bipartisan co-sponsorship, is pending before 
the Senate. S. 746, 106th Cong. (1999). It mandates the preparation of 
a cost-benefit analysis for major rules. See id. 623(b)(2). The bill 
does not preclude an agency from promulgating regulations that fail a 
cost-benefit test but imposes seemingly tough hurdles to such 
regulations. See id. 623(d)(2). Legislative efforts to require that 
essentially all important regulations satisfy a cost-benefit test, 
began in earnest with the 104th Congress ``Contract with America.'' See 
Cass R. Sunstein, Congress, Constitutional Moments, and the Cost-
Benefit State, 48 Stan. L. Rev. 247 (1996); see infra text accompanying 
notes 56-58 (views of Senator Leahy on S. 343). The House passed a bill 
during the Congress' second month, Sunstein, supra, at 275-76, but a 
companion bill in the Senate failed to move forward when cloture was 
defeated, id. at 277-82.
    3. For example, Richard Morgenstern explains: ``The value of 
fatality risk reduction figures prominently in assessment of 
environmental benefits. In the case of air pollution, the reduced risk 
of death often accounts for the largest single component of the dollar 
value of environmental benefits.'' Richard D. Morgenstern, Conducting 
an Economic Analysis: Rationale, Issues, and Requirements, in Economic 
Analyses at EPA: Assessing Regulatory Impact 25, 41-42 (Richard D. 
Morgenstern, ed., 1997); see James K. Hammitt, Stratospheric-Ozone 
Depletion, in id. at 131, 151-52 (value of averted skin cancer 
mortality comprises 98 percent of the benefits of the regulations 
implementing the Montreal Protocol). More generally, for all health-
and-safety regulations, one recent estimate is that ``about 60 percent 
of the total benefits results from reduction in the risk of death, 
disease, and injury.'' Robert W. Hahn, Regulatory Reform: What Do the 
Government's Numbers Tell Us?, in Risks, Costs, and Lives Saved: 
Getting Better Results from Regulation 208, 219 (Robert W. Hahn ed., 
1996).
    Moreover, even in cases in which there are other benefits, EPA's 
calculation of the magnitude of the benefits focuses on human health 
effects. See Lisa Heinzerling, Reductionist Regulatory Reform, 8 
Fordham Envtl. L.J. 459, 461-62 (1997). For examples, see id. at 495 
(asbestos ban); Ronnie Levin, Lead in Drinking Water, in Economic 
Analyses at EPA, supra, at 205, 227 (corrosion control). The same 
failure to quantify benefits other than those related to human health 
effects and mortality are also present with regard to agricultural 
pesticides, worker protection and primary air quality standards for 
ozone depletion. Louis P. True Jr., Agricultural Pesticides and Worker 
Protection 303, 318. However misguided such a policy might be, it 
magnifies the importance of the discounting issues analyzed in this 
Article.
    4. See Thomas O. McGarity & Sidney A. Shapiro, OSHA's Critics and 
Regulatory Reform, 31 Wake Forest L. Rev. 587, 629 (1996) (discussing 
occupational safety).
    5. Compare Emmett B. Keeler & Shan Cretin, Discounting of Life-
Saving and Other Nonmonetary Effects, 29 Mgmt. Sci. 300, 303-05 (1983) 
(favoring discounting), I. Steven Udvarhelyi et al., Cost-Effectiveness 
and Cost-Benefit Analyses in the Medical Literature, 116 Annals 
Internal Med. 238, 239 (1992) (same), and Milton C. Weinstein & William 
B. Stason, Foundations of Cost-Effectiveness Analysis for Health and 
Medical Practices, 296 New Engl. J. Med. 716, 719-20 (1977) (same) with 
Alan L. Hillman & Myoung S. Kim, Economic Decision Making in 
Healthcare: A Standard Approach to Discounting Health Outcomes, 7 
PharmacoEconomics 198, 198 (1995) (rejecting automatic discounting but 
arguing for ``thoughtful adjustments'' to reflect period of latency) 
and Michael Parsonage & Henry Neuburger, Discounting and Health 
Benefits, 1 Health Econ. 71 (1992) (opposing discounting).
    For discussion of different methods for discounting the benefits of 
medical interventions, see Magnus Johannesson, On the Discounting of 
Gained Life-Years in Cost-Effectiveness Analysis, 8 Int'l J. Tech. 
Assessment in Health Care 359 (1992).
    6. See, e.g., U.S. Office of Management and Budget, Regulatory 
Program of the U.S. Government, April 1, 1991-March 31, 1992, at 147-48 
(1991); Susan W. Putnam & John D. Graham, Chemicals Versus Microbials 
in Drinking Water: A Decision Sciences Perspective, J. Am. Water Works 
Ass'n, March 1993, at 57, 60; W. Kip Viscusi, Equivalent Frames of 
Reference for Judging Risk Regulation Policies, 3 N.Y.U. Envtl. L. J. 
431, 436 (1995); infra notes 28-55 (discussing Corrosion Proof Fittings 
case).
    7. See Michael B. Gerrard, Demons and Angels in Hazardous Waste 
Regulation: Are Justice, Efficiency, and Democracy Reconcilable?, 92 
Nw. L. Rev. 706, 743 (1998) (``[The] protection of future generations 
is not merely a matter for accountants. The Constitution was adopted in 
part to 'secure the Blessings of Liberty to ourselves and our 
Posterity.'''); Lisa Heinzerling, Regulatory Costs of Mythic 
Proportions, 107 Yale L.J. 1981, 2044 (1998) (``the decision to 
discount lives saved in the future involves a choice about values, as 
to which reasonable people may disagree''); A. Dan Tarlock, Now, Think 
Again About Adaptation, 9 Ariz. J. Int'l & Comp. L. 169, 173 (1992) 
(``Speculation about discount rates becomes a disguised debate about 
our ethical duties toward future generations.'').
    8. See Gerrard, supra note 7, at 742-43 (``If a human life is 
considered to be worth $8 million, and a 10 percent discount rate is 
chosen, then the present value of saving a life one hundred years from 
now is only $581. . . . Neither I nor anyone else uses this kind of 
argument. . . .''); McGarity & Shapiro, supra note 4, at 629 (``The 
practice of discounting future benefits to present value . . . biases 
cost-benefit analysis against future generations. A high discount rate 
clearly biases the analysis against future benefits, even though 'it is 
not clear why the later-born should have to pay interest to induce 
their predecessors not to exhaust [depletable resources.]''').
    9. The government of the United Kingdom, for example, has rejected 
the concept of discounting in connection with the health benefits of 
medical interventions. See Hillman & Kim, supra note 5, at 198.
    10. See What Price Posterity?, Economist, Mar. 23, 1991, at 73.
    11. See John K. Horowitz & Richard T. Carson, Discounting 
Statistical Lives, 3 J. Risk & Uncertainty 403, 412 n.2 (1990).
    12. See Al Gore, Earth in the Balance: Ecology and the Human Spirit 
190-91 (1992). Gore takes a negative view toward discounting:
    The accepted formulas of conventional economic analysis contain 
short-sighted and arguably illogical assumptions about what is valuable 
in the future as opposed to the present; specifically, the standard 
'discount rate' that assesses cost and benefit flows resulting from the 
use or development of natural resources routinely assumes that all 
resources belong to the present generation. . . . In the words of 
Herman Daly, ``There is something fundamentally wrong in treating the 
earth as if it were a business in liquidation.''
    Id.
    13. See, e.g., Peter S. Burton, Intertemporal Preferences and 
Intergenerational Equity Considerations in Optimal Resource Harvesting, 
24 J. Envtl. Econ. & Mgmt. 119, 119 (1993) (``Standard discounting 
practices confuse two issues: (1) intertemporal discount rates of 
members of the society and (2) intergenerational equity 
considerations.''); Harold P. Green, Legal Aspects of Intergenerational 
Equity Issues, in Equity Issues in Radioactive Waste Management 189, 
192 (Roger E. Kasperson ed. 1983) (noting that most of the statutes 
governing conservation of land and water resources and wildlife 
preservation ``do not distinguish between benefits accruing in the 
short-term future to members of the current generation and longer-term 
benefits to future generations''); Heinzerling, supra note 7, at 2043-
56 (not distinguishing the analysis of carcinogenic risks to the 
current generation and of risks to future generations); Magnus 
Johannesson & Per-Olov Johansson, The Discounting of Lives Saved in 
Future Generations: Some Empirical Results, 5 Health Econ. 329, 329 
(1996); Putnam & Graham, supra note 6, at 60 (equating delays in the 
adoption of public health problems with burdens on future generations).
    14. See infra text accompanying notes 28-55 (providing more 
detailed analysis of the proceedings).
    15. See Exec. Order 12,866, supra note 1, 2(b), 6(b) 
(responsibilities of OMB's Office of Information and Regulatory Affairs 
(OIRA)).
    16. See infra text accompanying notes 32-38.
    17. See Corrosion Proof Fittings v. EPA, 947 F.2d 1201, 1218-19 
(5th Cir. 1991).
    18. See Heinzerling, supra note 7.
    19. See id. at 1984-85. Heinzerling does not ultimately take a 
position on the propriety of discounting. See id. at 2055-56 (``More 
case-by-case attention needs to be given to the question of whether the 
future benefits of health and environmental regulation should be 
discounted at all, and if so, at what rate.''). In passing, however, 
she makes arguments that reveal a deep animosity toward discounting. 
See id. at 2043-54. The legal literature contains one other sustained 
discussion on the discounting of environmental benefits. See Daniel A. 
Farber & Paul A. Hemmersbaugh, The Shadow of the Future: Discount 
Rates, Later Generations, and the Environment, 46 Vand. L. Rev. 267 
(1993). The authors urge that, both intra-and intergenerationally, 
benefits should be discounted at the long-term real rate of return on 
riskless investments, which they take to be ``in the neighborhood of 1 
percent.'' See id. at 280, 303-04.
    20. See Christopher D. Stone, Beyond Rio: ``Insuring'' Against 
Global Warming, 86 Am. J. Int'l L. 445, 476 (1992) (``Any variations in 
policy that might be implied from defensible attitudes toward risk may 
well be swamped by the implications of defensible discount rates, and, 
indeed, of how one resolves the philosophical conundrums of valuing the 
welfare of future generations.''); Tarlock, supra note 7, at 173 (``The 
selection of the [discount] rate determines the strategy.'').
    21. Derek Parfit, Reasons and Persons 357 (1984). For other 
examples, see Gerrard, supra note 7, at 742-43 (``If a human life is 
considered to be worth $8 million and a 10 percent discount rate is 
chosen, then the present value of saving a life one hundred years from 
now is only $581.''); McGarity & Shapiro, supra note 4, at 629 (``At a 
discount rate of 10 percent, a dollar's worth of benefits 50 years from 
now is worth slightly less than a penny today.'').
    22. Clifford S. Russell, ``Discounting Human Life'' (Or, the 
Anatomy of a Moral-Economic Issue), Resources, Winter 1986, at 8, 8; 
see Frank S. Arnold, Economic Analysis of Environmental Policy and 
Regulation 193 (1995) (``When the delay between the present and the 
time the benefits of a regulatory action are enjoyed is very large, say 
hundreds of years, using virtually any positive discount rate will 
render the present value of the benefits almost nil.''); Robert C. 
Lind, Reassessing the Government's Discount Rate Policy in Light of New 
Theory and Data in an Economy with a High Degree of Capital Mobility, 
18 J. Envtl. Econ. & Mgmt. S-8, S-20 (1990). (``The basic arithmetic of 
exponential growth applied in a cost-benefit analysis implies that, 
regardless of how small the cost today of preventing an environmental 
catastrophe that will eventually wipe out the entire economy, it would 
not be worth this cost to the present generation if the benefits in the 
future are sufficiently distant.'').
    23. See supra text accompanying note 13.
    24. See, e.g., Environmental Policy Under Reagan's Executive Order, 
supra note 1; McGarity, supra note 1, at 29-59, 174-76, 239-61; Pildes 
& Sunstein, supra note 1; Sunstein, supra note 2.
    25. See supra text accompanying notes 1-4.
    26. See infra Part I.G.
    27. A similar set of issues arises where current expenditures can 
prevent future harms to individuals now alive, even though the harm is 
not a latent disease. The analysis in Part I is therefore relevant to 
this situation as well.
    28. 947 F.2d 1201 (5th Cir. 1991); see Russell, supra note 22, at 9 
(noting that before this proceeding, ``'discounting of human lives' had 
not yet become an issue in the public debate''). For discussion of the 
case, see Rita L. Wecker, Case Comment: A ``Hard Look'' at a Soft 
Analysis, Corrosion Proof Fittings v. Environmental Protection Agency, 
4 B.U. Pub. Int. L.J. 145 (1994).
    29. 51 Fed. Reg. 3738 (1986).
    30. See supra text accompanying notes 1-4.
    31. See Letter of Robert P. Bedell, Deputy Administrator, Office of 
Information and Regulatory Affairs to A. James Barnes, Acting Deputy 
Administrator, Environmental Protection Agency (March 27, 1985), 
reprinted in Peter S. Menell & Richard B. Stewart, Environmental Law 
and Policy 104 (1994).
    32. See id.
    33. See infra text accompanying note 182.
    34. See Letter of Robert P. Bedell, supra note 31, at 104.
    35. Subcomm. on Oversight and Investigations of the House Comm. on 
Energy and Commerce, EPA's Asbestos Regulations: Report on a Case Study 
on OMB Interference in Agency Rulemaking, reprinted in Menell & 
Stewart, supra note 31, at 111. The Barnes comment does not deal 
specifically with the problem of latent harms, but it reflects a 
general antipathy to discounting the valuations of human life.
    36. Some Members of Congress took a strident position against 
discounting. For example, Representative Bob Eckhardt noted that ``'it 
was difficult to say whether that kind of approach was more callous or 
more foolish''' and Representative James Florio called OMB's approach 
``ghoulish[].'' See Russell, supra note 22, at 9.
    37. See Subcomm. on Oversight and Investigations, supra note 35, 
reprinted in Menell & Stewart, supra note 31, at 109.
    38. See id.
    39. See id. at 110; Sidney A. Shapiro & Thomas O. McGarity, Not So 
Paradoxical: The Rationale for Technology-Based Regulation, 1991 Duke 
L.J. 729, 735 (``In cases of toxic substance exposure, where the onset 
of disease can be delayed by as much as 30 years, [discounting] 
effectively ignores the risk altogether.'').
    40. Subcomm. on Oversight and Investigations, supra note 35, 
reprinted in Menell & Stewart, supra note 31, at 111.
    41. Id.
    42. 51 Fed. Reg. 3738, 3757-59 (1986).
    43. See id. at 3748; 54 Fed. Reg. 29,460, 29,487 (1989).
    44. 54 Fed. Reg. 29,460, 29,483 (1989).
    45. See id. at 29,485.
    46. See id.
    47. Id. at 29,487.
    48. Id.
    49. Id.
    50. 947 F.2d 1201 (5th Cir. 1991).
    51. Id. at 1218. Lisa Heinzerling criticizes the Fifth Circuit's 
position: ``One worries about 'preserving an apples-to-apples 
comparison,' however, only if one is dealing only with apples. In the 
asbestos case, the costs were dollars and the benefits were lives. 
These costs and benefits are the same only if dollars and lives are the 
same.'' Heinzerling, supra note 7, at 2053. Both positions overlook an 
aspect of the problem. The Fifth Circuit misses the fact that the 
intertemporal choices of individuals do not necessarily reflect 
discounting at the rates used by financial markets (though in fact 
empirical studies show no statistically significant differences). See 
infra Part I.F.1. In turn, Heinzerling's rhetorical device fails to 
acknowledge that the cost-benefit calculus in the case required the 
valuation of the life, and that the question whether this amount should 
be discounted is one that depends on how individuals compare the 
utilities derived from living in the present to the utilities derived 
from living in the future. See infra text accompanying notes 223-224.
    52. See Corrosion Proof Fittings, 947 F.2d at 1218-19, 1229-30. The 
court's analysis revealed confusion. It relied primarily on the 
following example:
    Suppose two workers will be exposed to asbestos in 1995, with 
worker X subjected to a tiny amount of asbestos that will have no 
adverse health effects, and worker Y exposed to massive amounts of 
asbestos that quickly will lead to an asbestos-related disease. Under 
the EPA's approach, which takes into account only the time of the 
exposure rather than the time at which any injury manifests itself, 
both examples would be treated the same.
    Id. at 1218. In fact, if worker X would never get cancer, the 
regulation would have no benefit with respect to this worker. With zero 
benefits, there would be nothing to discount. What the court might have 
meant is that if workers X and Y had been exposed to asbestos at the 
same time, and worker Y was injured before worker X, the EPA would 
treat both cases in the same way (and presumably the Fifth Circuit 
would have wanted to treat them differently).
    53. Id.
    54. For related discussion, see infra text accompanying notes 155-
157.
    55. See Corrosion Proof Fittings, 947 F.2d at 1218 n.19. For 
further discussion of discount rates, see infra Part I.F.2.
    56. S. 343, 104th Cong. (1995).
    57. See id. at 623 (``[no] final rule . . . shall be promulgated 
unless the agency finds that . . . the potential benefits from the rule 
. . . justify the potential costs of the rule''); id. at 621-622 
(dealing with the preparation of cost-benefit analyses); see generally 
supra text accompanying notes 1-4 (discussing regulatory reform).
    58. S. Rep. No. 104-90, at 153 (1995) (supplemental views of 
Senator Leahy).
    59. The only two sustained treatments of the question of 
discounting in the legal academic literature were those of Farber & 
Hemmersbaugh, supra note 19, and Heinzerling, supra note 7. See supra 
note 19 (discussing their positions). While the economics literature 
has focused on isolated nuances, it has not taken a broad look at the 
problem or connected the various strands that are necessary to a 
sophisticated analysis of the public policy choices.
    60. See W. Kip Viscusi, The Valuation of Risks to Life and Health: 
Guidelines for Policy Analysis, in Benefits Assessment: The State of 
the Art 193, 193 (Judith D. Bentkover et al. eds., 1986) [hereinafter 
Viscusi, Valuation]. For a more recent survey, see W. Kip Viscusi, The 
Value of Risks to Life and Health, 31 J. Econ. Literature 1912 (1993) 
[hereinafter Viscusi, Value]. The technique is generally traced to 
Thomas C. Schelling, The Life You Save May Be Your Own, in Problems in 
Public Expenditure Analysis 127 (Samuel B. Chase, Jr. ed., 1968), and 
E.J. Mishan, Evaluation of Life and Limb: A Theoretical Approach, 79 J. 
Pol. Econ. 687, 695-705 (1971).
    Before the ascendancy of willingness-to-pay studies, the human 
capital approach was prevalent. This approach valued life in terms of 
lost earnings. See Viscusi, Valuation, supra, at 198. The technique is 
subject to the obvious criticism that earnings provide that 
``individual well-being goes far beyond its financial implications.'' 
Id.; accord W.B. Arthur, The Economics of Risks to Life, 71 Am. Econ. 
Rev. 54, 54 (1981); Lewis A. Kornhauser, The Value of Life, 38 Clev. 
St. L. Rev. 209, 212 (1990).
    61. See Viscusi, Valuation, supra note 60, at 200.
    62. See id. at 199-200.
    63. Such workers might also face a higher probability of nonfatal 
risks. Some studies estimate the portion of the wage differential that 
is attributable to such non-fatal risks. The residual wage differential 
is then attributed to fatal risks. See Viscusi, Value, supra note 60, 
at 1919. Some studies, however, do not separate the wage differential 
into these two components. See id.
    64. For criticism of the approach, see McGarity, supra note 1, at 
147-48; Steven Kelman, Cost-Benefit Analysis and Environmental, Safety, 
and Health Regulation: Ethical and Philosophical Considerations, in 
Cost-Benefit Analysis and Environmental Regulations: Politics, Ethics, 
and Methods 137, 143-45 (Daniel Swartzman et al. eds., 1982); J. Paul 
Leigh, Compensating Wages, Value of a Statistical Life, and Inter-
industry Differentials, 28 J. Envtl. Econ. & Mgmt. 83, 94-95 (1995); 
McGarity & Shapiro, supra note 4, at 628-29.
    An alternative methodology consists of surveying individuals and 
asking them how much they would be willing to pay for a particular risk 
reduction. See Viscusi, Valuation, supra note 60, at 204-05. The 
disadvantage of this contingent valuation method is that the responses 
are to hypothetical situations and have no economic consequences. See 
V. Kerry Smith & William H. Desvousges, An Empirical Analysis of the 
Economic Value of Risk Changes, 95 J. Pol. Econ. 89, 93-94 (1987).
    65. See Maureen L. Cropper & Frances G. Sussman, Valuing Future 
Risks to Life, 19 J. Envtl. Econ. & Mgmt. 160, 160 (1990) (``The 
empirical literature on valuing risks to life has focused almost 
exclusively on valuing mortality risks that occur today--the risk of 
accidental death a worker faces during the coming year or the risk of 
dying this month in an auto accident.''); Horowitz & Carson, supra note 
11, at 405 (``Virtually all the empirical work on the value of risk 
reductions has considered risks that occur entirely in the present. . . 
.''); Shapiro & McGarity, supra note 39, at 734 (``most wage premium 
studies . . . are based on safety hazards, not health risks''). Of 
course, to the extent that there is a probability of a non-fatal 
accident, the resulting morbidity risk could also be measured using a 
willingness-to-pay approach.
    66. See Leigh, supra note 64, at 86-87; Viscusi, Valuation, supra 
note 60, at 200. Of course, in some cases, industrial accidents result 
in long-term disability rather than death.
    67. One ongoing attempt to derive a willingness-to-pay valuation of 
human lives threatened by carcinogens is reflected in John R. Lott, Jr. 
& Richard L. Manning, Have Changing Liability Rules Compensated Workers 
Twice for Occupational Hazards?: Earnings Premiums and Cancer Risks 
(June 28, 1998) (manuscript on file with the Columbia Law Review). For 
a contingent valuation study inquiring how individuals value risk 
reductions from hazardous waste sites, see Smith & Desvousges, supra 
note 64.
    68. Both the Occupational Safety and Health Administration (OSHA) 
and EPA were established in 1970. See Sidney A. Shapiro & Thomas O. 
McGarity, Reorienting OSHA: Regulatory Alternatives and Legislative 
Reform, 6 Yale J. on Reg. 1, 1 n.1, 2 n.9 (1989).
    69. See Cropper & Sussman, supra note 65, at 166 n.8. Moreover, 
certain risks may be poorly understood even by experts. See Smith & 
Desvousges, supra note 64, at 108-09.
    70. See Sherwin Rosen, The Quantity and Quality of Life: A 
Conceptual Framework, in George Tolley et al., Valuing Health for 
Policy: An Economic Approach 221 (1994).
    71. One commentator estimates that ``the average age of the 
workplace accident fatality is about 41'' whereas ``the average age of 
the workplace cancer victim is likely to be 55, 65, or even higher.'' 
John M. Mendeloff, The Dilemma of Toxic Substance Regulation: How 
Overregulation Causes Underregulation at OSHA 48 (1988).
    72. Additional complications are introduced when the length of the 
person's life is uncertain. See Rosen, supra note 70, at 236-45. No 
important insights are lost, however, as a result of this 
simplification. In practice, of course, an individual who would have 
died of cancer at the end of the latency period may die earlier of 
other causes. See Lester B. Lave, The Strategy of Social Regulation: 
Decision Frameworks for Policy 43 (1981).
    73. See Maureen L. Cropper & Paul R. Portney, Discounting and the 
Evaluation of Lifesaving Programs, 3 J. Risk & Uncertainty 369, 376 
(1990).
    74. A more complicated situation arises when an individual is 
exposed to a carcinogen over a long period of time and the harm 
resulting from the exposure is cumulative.
    75. See Cropper & Sussman, supra note 65, at 172-73.
    76. See W. Kip Viscusi, Discounting Health Effects for Medical 
Decisions, in Valuing Health Care: Costs, Benefits, and Effectiveness 
of Pharmaceuticals and Other Medical Technologies 125, 129 (Frank A. 
Sloan ed., 1995). In contrast, a nominal rate is used to discount 
current dollars. The real rate is the nominal rate minus the rate of 
inflation.
    77. See Edith Stokey & Richard Zeckhauser, A Primer for Policy 
Analysis 161-65 (1978).
    78. See infra Part I.F.1.
    79. See Cropper & Sussman, supra note 65, at 165-66.
    80. See supra text accompanying note 71 (hypothesizing that the 
worker exposed to the risk of instantaneous death is 40-years old).
    81. See Cropper & Portney, supra note 73, at 378 n.12.
    82. See Cropper & Sussman, supra note 65, at 172 (``This fact . . . 
is often ignored in risk-benefit analyses.'').
    83. See infra Part I.G.
    84. See Robert F. Bordley, Making Social Trade-Offs Among Lives, 
Disabilities, and Cost, 9 J. Risk & Uncertainty 135, 138 (1994).
    85. See Cropper & Portney, supra note 73, at 371-72; Rosen, supra 
note 70, at 222-23.
    86. A similar issue arises in the literature on QALYs, or quality-
adjusted life years, which are a means for adjusting the utility that 
an individual gets in a period by the quality of her health in that 
period. So, for example, an individual derives greater utility from a 
year in which her health is excellent than in one in which she is 
disabled. See Richard Zeckhauser & Donald Shepard, Where Now for Saving 
Lives?, Law & Contemp. Probs., Autumn 1976, at 5, 12-13. In the context 
of QALYs, separability implies that the utility that a person derives 
from the quality of her life in a particular year is independent of the 
qualities of her life in past years. See John Broome, QALYs, 50 J. Pub. 
Econ. 149, 151-52 (1993).
    87. Broome, supra note 86, at 151-52. Broome applies this label to 
a separability model in the context of QALYs. See supra note 86.
    88. See Bordley, supra note 84, at 138.
    89. See infra Part I.F.1.
    90. See infra Part I.E.3.
    91. See supra text accompanying notes 65-69.
    92. See Bordley, supra note 84, at 138; Michael J. Moore & W. Kip 
Viscusi, Discounting Environmental Health Risks: New Evidence and 
Policy Implications, 18 J. Envtl. Econ. & Mgmt. S-51, S-54 (1990); 
Rosen, supra note 70, at 224.
    93. Donald S. Shepard & Richard J. Zeckhauser, Survival Versus 
Consumption, 30 Mgmt. Sci. 423, 424 (1984).
    94. Id. at 424; see also Joseph Lipscomb, Time Preference for 
Health in Cost-Effectiveness Analysis, 27 Med. Care S233, S237 (1989) 
(asking whether individuals evaluate multiperiod health outcomes ``in 
accordance with constant-rate discounting'').
    95. See W. Kip Viscusi & Michael J. Moore, Rates of Time Preference 
and Valuations of the Duration of Life, 38 J. Pub. Econ. 297, 297-98 
(1989) (``Although money is readily transferable across time, health 
status is not.''). Part I.F.1, infra, explains more generally why 
discounting health risks is analytically different from discounting 
financial flows.
    96. There have been attempts to estimate the rate at which 
individuals discount their utilities, but they have been conducted on 
the basis of constant discounting models. See Moore & Viscusi, supra 
note 92, at S-54. There also are empirical estimates of how discount 
rates depend on the period over which the discounting is performed, but 
these studies are intergenerational, or at the very least 
interpersonal. See infra Part II.B.
    97. See Donald A. Redelmeier & Daniel N. Heller, Time Preference in 
Medical Decision Making and Cost-Effectiveness Analysis, 13 Med. 
Decision Making 212, 216 (1993); id. at 214-15 (finding that rates for 
temporally proximate events were larger than for more distant events); 
infra Part II.B (same finding in intergenerational models).
    98. See supra text accompanying notes 36-38.
    99. See Cropper & Portney, supra note 73, at 377.
    100. See Shepard & Zeckhauser, supra note 93, at 437 n.18; Viscusi, 
supra note 76, at 130. But see Glenn Blomquist, Value of Life Saving: 
Implications of Consumption Activity, 87 J. Pol. Econ. 540, 555 (1979) 
(finding lower elasticity).
    101. See supra text accompanying notes 78-80.
    102. See Viscusi, supra note 76, at 130; Richard Zeckhauser, 
Procedures for Valuing Lives, 23 Pub. Pol'y 419, 437 (1975).
    103. See William D. Nordhaus, To Slow or Not to Slow: The Economics 
of the Greenhouse Effect, 101 Econ. J. 920, 925-26 (1991); Viscusi, 
supra note 76, at 130.
    104. Farber & Hemmersbaugh, supra note 19, state that ``the 
discount rate even for economic benefits cannot significantly exceed 
the expected long-term rate of economic growth; otherwise, we would 
discount even the destruction of most future Gross Domestic Product to 
a low present value over periods of only decades.'' Id. at 296. The 
authors appear to be making a pragmatic argument for keeping the 
effective discount rate low. There is, however, no plausible normative 
argument for linking the two rates in this manner.
    105. U.S. Census Bureau, Historical Income Tables--Persons, Table 
P-44 (visited June 22, 1998) /www.census.gov/hhes/income/
histinc/p44.html>.
    106. Over the longer run, the rate has been higher. See William R. 
Cline, The Economics of Global Warming 251 (1992) (estimating that 
``real per capita income in the United States has grown at about 1.7 
percent annually over the past century'').
    107. See Donald S. Shepard & Richard J. Zeckhauser, Life-Cycle 
Consumption and Willingness to Pay for Increased Survival, in The Value 
of Life and Safety 95, 120-27 (M.W. Jones-Lee ed., 1982) [hereinafter 
Shepard & Zeckhauser, Life-Cycle Consumption]; Shepard & Zeckhauser, 
supra note 93, at 432-36.
    108. See Zeckhauser, supra note 102, at 437.
    109. Id. at 438.
    110. In general, one's credit suitability for loans is evaluated on 
the basis of one's present income. There are some exceptions, however, 
such as student loans to finance post-secondary education.
    111. See Shepard & Zeckhauser, Life-Cycle Consumption, supra note 
107, at 107-15. There is potentially a logical inconsistency in 
believing that individuals cannot process the fact that they will have 
higher incomes in the future in order to value their lives accordingly, 
but positing that individuals will borrow money in the expectation of 
higher income in the future.
    112. See id. at 125.
    113. See id.
    114. See id. at 121.
    115. See Shepard & Zeckhauser, supra note 93, at 434.
    116. See id. at 435 (noting that ``the real world lies somewhere in 
between'' the two models).
    117. See supra text accompanying note 114.
    118. See Shepard & Zeckhauser, supra note 93, at 433.
    119. See Viscusi, Value, supra note 60, at 1942-43 (``the 
population of exposed workers . . . generally have lower incomes than 
the individuals being protected by broadly based risk regulation'').
    120. EPA should, however, vary its valuations of life on the basis 
of the age profile of the affected population, to account for the 
different numbers of life-years at stake in various regulatory 
programs.
    121. For discussion of environmental justice, see Vicki Been, 
Coming to the Nuisance or Going to the Barrios? A Longitudinal Analysis 
of Environmental Justice Claims, 24 Ecology L.Q. 1 (1997); Vicki Been, 
Locally Undesirable Land Uses in Minority Neighborhoods: 
Disproportionate Siting or Market Dynamics?, 103 Yale L.J. 1383 (1994); 
Robert D. Bullard, Anatomy of Environmental Racism and the 
Environmental Justice Movement, in Confronting Environmental Racism: 
Voices from the Grassroots 15 (Robert D. Bullard ed., 1993); Richard J. 
Lazarus, Pursuing ``Environmental Justice'': The Distributional Effects 
of Environmental Protection, 87 Nw. U. L. Rev. 787 (1993).
    122. An ethical objection to such particularization would be an 
attack on cost-benefit analysis in general and to the use of a 
willingness-to-pay methodology for valuing lives in particular. See 
Guido Calabresi & Philip Bobbitt, Tragic Choices: The Conflicts Society 
Confronts in the Allocation of Tragically Scarce Resources 32 (1978) 
(referring to ``the external costs--moralisms and the affront to 
values, for example--of market determinations that say or imply that 
the value of a life or of some precious activity integral to life is 
reducible to a money figure''). Nonetheless, using differential 
valuations of life based on income levels is likely to prove 
objectionable to some supporters of cost-benefit analysis, and to 
magnify the objections adduced by opponents of this approach.
    123. See U.S. Census Bureau, Historical Income Tables--Persons: 
Table P-36: Occupation of Longest Job--Workers (Both Sexes Combined) by 
Median and Mean Earnings (visited June 22, 1998) /
www.census.gov/hhes/income/ histinc/p36.html>.
    124. See id.
    125. See id.
    126. See Paul Slovic, Perception of Risk, 236 Science 280 (1987).
    127. Zeckhauser, supra note 102, at 445 n.27.
    128. Cass Sunstein cogently explains that ``the question whether a 
risk is run voluntarily or not is often not a categorical one but 
instead a matter of degree.'' Cass R. Sunstein, Bad Deaths, 14 J. Risk 
& Uncertainty 259, 272 (1997). Sunstein would place risks on a 
voluntariness/involuntariness continuum based on three factors: whether 
the worker has adequate information about the risk; whether the worker 
is compensated for the risk; and whether the compensation package does 
not appear unfair, even if voluntarily chosen by the parties, as a 
result of background inequality between the employer and employee. See 
id.; see also Shapiro & McGarity, supra note 39, at 734 
(``Unfortunately, low-paid workers in hazardous industries where there 
are no (or weak) unions may act more out of desperation than 
choice.'').
    129. See Maureen L. Cropper & Uma Subramanian, Public Choice 
Between Lifesaving Programs 6 (World Bank Policy Research Working Paper 
1497, 1995). Of course, if an individual is exposed to a toxic air 
pollutant, she could move somewhere else. Sunstein would nonetheless 
classify the risk as involuntary because the individuals are not in a 
contractual relationship with the producer of the risk and cannot avoid 
the risk except at great cost, in this case by moving to another area. 
See Sunstein, supra note 128, at 271.
    Moreover, in many cases, individuals may lack sufficient 
information about environmental risks to make informed choices. Even if 
they had such information, risks that are uniformly distributed 
throughout the country could obviously not be avoided by moving 
elsewhere. For further discussion of the difference between voluntary 
and involuntary risks, see Richard H. Pildes & Cass R. Sunstein, 
Democrats and Technocrats, Journees d'Etudes Juridiques Jean Dabin 
(forthcoming 2000) (manuscript on file with the Columbia Law Review).
    130. See supra text accompanying notes 60-62.
    131. Even studies of how the price of a house in an area with high 
concentrations of this pollutant compares to the price of an otherwise 
similar house in an area with better air quality do not capture the 
value of involuntary risk. While such hedonic price studies are a 
commonly used revealed preference tool for economic valuations, see 
Ronald G. Cummings et al., General Methods for Benefits Assessment, in 
Benefits Assessment, supra note 60, at 171-76, the participants in 
these housing markets are individuals attempting to decide where to 
live. They are making a choice about whether to live in one area rather 
than another. As a result, it would be a stretch to regard their 
``choice'' as involuntary. Rather, the involuntary label is better used 
for individuals who have lived in an area for a long time, have strong 
personal ties to the area, and lack the resources to move.
    132. An extensive list of such references is provided in 
Heinzerling, supra note 7, at 1983 n.1, 2. The genesis for these 
studies is a table prepared in the 1980's by John Morrall, an OMB 
official. See John F. Morrall III, A Review of the Record, Regulation, 
Nov./Dec. 1986, at 25, 30 tbl.4. Heinzerling notes, however, that the 
regulations with numbers at the high end were never promulgated. 
Moreover, she argues that the remaining differences would be less stark 
if Morrall had not discounted the benefits of environmental regulation 
or reduced the estimates of risk prepared by the agencies. See 
Heinzerling, supra note 7, at 1984-85.
    133. There has been strong criticism to valuations based on survey 
responses. See Richard B. Stewart, Liability for Natural Resource 
Injury: Beyond Tort, in Analyzing Superfund: Economics, Science, and 
Law 219, 234-38 (Richard L. Revesz & Richard B. Stewart eds., 1995). 
Nonetheless, a panel of distinguished economists, co-chaired by Nobel 
Prize winners Kenneth Arrow and Robert Solow, which had been empaneled 
by the National Oceanic and Atmospheric Administration (NOAA), gave 
qualified endorsement to the use of contingent valuation techniques. 
See 58 Fed. Reg. 4601, 4610 (1993). Clearly, revealed preference 
valuations would be preferable, but, as indicated above, such 
valuations cannot be used for involuntary harms. See supra text 
accompanying notes 130-131.
    134. See Cropper & Subramanian, supra note 129, at 2.
    135. See id. at 16-18.
    136. See id. at 3-7.
    137. The remaining characteristics were the extent to which the 
affected population was to blame for the risk, the seriousness of the 
risk, and whether the risks affected respondents personally. In 
addition to these four risk characteristics, the respondents were also 
asked to assess four program characteristics: the efficacy of the 
program, the appropriateness of government intervention, the fairness 
of the funding mechanism, and the time before the program begins to 
save lives. See id. at 39.
    138. See id. at 40.
    139. A labeling program, designating food to be free of pesticide, 
could work effectively if the claims were in fact truthful and adequate 
information was conveyed to prospective buyers. But social coordination 
would be necessary to set up the labeling program and to police its 
integrity.
    140. See Cropper & Subramanian, supra note 129, at 40.
    141. See id. at 41.
    142. See id. at 48.
    143. See id. at 24, 41.
    144. See id. at 4-5.
    145. See McGarity, supra note 1, at 146-49; Kelman, supra note 64, 
at 144; Viscusi, Value, supra note 60, at 1928.
    This effect is discussed even though it has not been the focus of 
empirical study, see supra text accompanying notes 99-100, because it 
flows in part from the difference between the voluntary nature of 
workplace harms and the involuntary nature of environmental harms.
    146. Some self-selection can take place with respect to reasonably 
local risks, such as those that result from proximity to hazardous 
waste sites. With respect to more regional risks, such as regional air 
pollution, however, such self-selection is far more difficult.
    147. See Sunstein, supra note 128, at 259.
    148. See Tammy O. Teng et al., Five-Hundred Life-Saving 
Interventions and Their Cost-Effectiveness, 15 Risk Analysis 369 
(1995).
    149. See id. at 370.
    150. See id. at 371.
    151. See id.
    152. See supra text accompanying notes 131-133.
    153. George Tolley et al., State-of-the-Art Health Values, in 
Tolley et al., supra note 70, at 323, 339-44.
    154. See id. at 339-40.
    155. See supra text accompanying notes 64-68.
    156. But cf. Sunstein, supra note 128, at 269 (an extended period 
before death can contain benefits, since it allows grief and 
adjustment).
    157. See Tolley et al., supra note 153, at 329-32, 340; supra note 
133 and accompanying text.
    158. See Tolley et al., supra note 153, at 340.
    159. See id. at 340-41; see also Michael W. Jones-Lee et al., The 
Value of Safety: Results of a National Sample Survey, Econ. J., March 
1985, at 49, 58-60. For a more recent study finding a higher 
willingness-to-pay to avoid carcinogenic harms, see Ian Savage, An 
Empirical Investigation into the Effect of Psychological Perceptions on 
the Willingness-to-Pay to Reduce Risk, 6 J. Risk & Uncertainty 75, 77, 
85 (1993).
    160. For intuitions supporting a higher valuation for dreaded 
harms, see Mendeloff, supra note 71, at 48; Shapiro & McGarity, supra 
note 39, at 734 n.29.
    161. See Lave, supra note 72, at 44 (``Discounting future health 
effects at the standard rate makes sense only if there is a fixed 
transformation rate between dollars and health.''); John Mendeloff, 
Measuring Elusive Benefits: On the Value of Health, 8 J. Health Pol., 
Pol'y & Law 554, 568 (1983) (``discount rate for health effects should 
largely be based upon individuals' time preferences''); supra note 51 
and accompanying text; infra Part I.F.1. But see Victor R. Fuchs & 
Richard Zeckhauser, Valuing Health--A ``Priceless'' Commodity, 77 Am. 
Econ. Rev. 263, 264 (1987) (suggesting that life years should be 
discounted in the same manner as cash-flows).
    162. See Farber & Hemmersbaugh, supra note 19, at 287.
    163. Viscusi, supra note 76, at 131-32.
    164. See John A. Cairns, Valuing Future Benefits, 3 Health Econ. 
221, 221 (1994) (``Little is known about individual time preferences 
with respect to future health, and in particular whether they differ 
from preferences with respect to future wealth.''); Putnam & Graham, 
supra note 6, at 60 (``Instead of choosing a standard discount rate . . 
. the rate should be based on the . . . preferences of citizens.'').
    165. See Moore & Viscusi, supra note 92, at S-61 (``One should also 
be cognizant of the ultimate objective of our study, which is to 
ascertain whether systematic differences exist between rates of time 
preference for health and financial rates of return.'').
    166. See id. at S-52-S-55.
    167. See id. at S-53.
    168. See id. at S-57. These studies follow a revealed preference 
approach, which consists of observing the prices at which market 
transactions take place. See supra text accompanying notes 130-131.
    169. See Moore & Viscusi, supra note 92, at S-59, S-61.
    170. Id. at S-59; see also supra text accompanying note 55; supra 
note 76 (discussing difference between real and nominal rates).
    171. Moore & Viscusi, supra note 92, at S-61; see also id. at S-52.
    It is worth thinking about how the regulatory system ought to react 
if, contrary to the findings by Moore and Viscusi, one found that 
individuals discounted health risks at a very high rate, even when they 
were well informed about these risks. In such situations, it might be 
appropriate for the government to act in a paternalistic fashion and 
make social policy on the basis of a lower discount rate. The rationale 
would be somewhat analogous to the rationale for the usury laws, which 
prohibit lending at an overly high interest rate.
    The utility of an individual with an unusually high discount rate 
would increase if she were allowed to borrow at a rate up to her 
discount rate in order to transfer consumption from the future to the 
present. The usury laws, however, prevent her from doing so because of 
concern that she might later experience excessive regret. Similarly, in 
deciding how stringently to regulate future environmental risks, the 
government could be skeptical of discount rates for health risks that 
are high compared to the rates at which money gets transferred through 
the financial markets.
    Empirical findings of high discount rates would at the very least 
be troubling and raise difficult questions as to how social 
policymakers should react. The Moore and Viscusi studies, showing an 
equivalence between the rates at which individuals discount health 
risks and the rates at which the market discounts flows of money, make 
it unnecessary to face this issue.
    172. See id. at S-61. The earlier studies are Michael J. Moore & W. 
Kip Viscusi, Models for Estimating Discount Rates for Long-Term Health 
Risks Using Labor Market Data, 3 J. Risk & Uncertainty 381 (1990); 
Michael J. Moore & W. Kip Viscusi, The Quantity-Adjusted Value of Life, 
26 Econ. Inquiry 369 (1988); Viscusi & Moore, supra note 95.
    173. See Moore & Viscusi, supra note 92, at S-61.
    174. Id.
    175. See Viscusi & Moore, supra note 95, at 314.
    176. The issue is not entirely free of doubt. For example, a more 
recent study by Viscusi and a different co-author, using a similar 
methodology, found real discount rates ranging from 11-17 percent, in 
the context of automobile safety. See Mark K. Dreyfus & W. Kip Viscusi, 
Rates of Time Preference and Consumer Valuations of Automobile Safety 
and Fuel Efficiency, 38 J.L. & Econ. 79, 84, 99 (1995). The authors 
note that the riskless rate of interest, which they estimate in the 2-5 
percent range, is outside the confidence limit of their estimates. See 
id. at 99. They note, however, that in many cases consumers face 
interest rates that are far higher than the riskless rate, and that 
their estimated discount rate was not statistically different, at a 95 
percent confidence interval, from the real rates for the financing of 
automobile purchases (8.5 percent and 11.0 percent for new and used 
cars, respectively). See id. at 99-100.
    Individuals also exhibit inordinately high discount rates with 
respect to purchases having an effect on energy conservation. Thus, 
they have not been willing to pay much of a premium on the purchase of 
products such as air conditioning or heating units in return for lower 
energy costs in the future. See Jeffrey A. Dubin, Will Mandatory 
Conservation Promote Energy Efficiency in the Selection of Household 
Appliance Stocks?, 7 Energy J. 99, 109-13 (1986); Jerry A. Hausman, 
Individual Discount Rates and the Purchase and Utilization of Energy-
Using Durables, 10 Bell J. Econ. 33, 50-52 (1979); Douglas A. Houston, 
Implicit Discount Rates and the Purchase of Untried, Energy-Saving 
Durable Goods, 10 J. Consumer Res. 236, 236-37 (1983).
    These studies, which are discussed in Dreyfus & Viscusi, supra, at 
83-84, affect only financial flows and do not raise the question of how 
to discount future health risks. The problem here may well be that 
consumers lack clear information on energy savings benefits or cannot 
properly process this information if they have it, see Wesley A. Magat 
& W. Kip Viscusi, Informational Approaches to Regulation 5 (1992), or 
that they violate some of the postulates of rational theory, see George 
Loewenstein & Richard H. Thaler, Intertemporal Choice, 3 J. Econ. 
Persp. 181, 182-83, 192 (1989).
    177. See supra text accompanying note 167.
    178. See Rosen, supra note 70, at 224; supra text accompanying 
notes 99-100.
    179. In fact, the situation may be even more complicated. Children, 
for example, may increase one's utility. See Richard A. Epstein, 
Justice Across Generations, 67 Tex. L. Rev. 1465, 1472 (1989). Then, 
for a given level of consumption, after one has children one's utility 
might be higher than before.
    180. See supra text accompanying notes 36-38.
    181. See Circular No. A-94, 57 Fed. Reg. 53,519 (1992).
    182. See Robert C. Lind, Discounting for Time and Risk in Energy 
Policy 5-6 (1982). For criticisms, see Daniel A. Farber, Risk 
Regulation in Perspective: Reserve Mining Revisited, 21 Envtl. L. 1321, 
1349-50 (1991); Farber & Hemmersbaugh, supra note 19, at 278 & n.43; 
Viscusi, supra note 76, at 129.
    183. See 57 Fed. Reg. at 53,522-23.
    184. Id. at 53,523.
    185. See id. at 53,520, 53,523.
    186. See id. at 53,528 (3.8 percent); 61 Fed. Reg. 6397, 6397 
(1996) (3.0 percent); 63 Fed. Reg. 3932, 3933 (1998) (3.8 percent).
    187. For clear analyses, see Arnold, supra note 22, at 177-97; 
Lind, supra note 22. For an excellent primer on discounting, see Lind, 
supra note 182, at 21-94.
    188. Arnold, supra note 22, at 180.
    189. See id. at 181.
    190. Because income taxes are due on nominal interest, the tax 
adjustment must be performed first. See id. at 192 n.10.
    191. See id. at 192.
    192. See id. at 192; Viscusi, supra note 76, at 129, 134.
    In 1998, the yield on 30-year Treasury bonds stood at 5.57 percent, 
the lowest since auctions on these bonds began in 1977. See Guy Dixon & 
Candace Cumberbatch, Bond Price Hit New Highs, Lifted by Concerns About 
Japan and Signals of a U.S. Slowdown, Wall St. J., July 7, 1998, at 
C19. An individual facing a 28 percent Federal marginal tax rate would 
have an after-tax return of 4.0 percent. Subtracting the change in the 
consumer price index for the twelve-month period ending in May 1998, 
which is 1.7 percent, see U.S. Bureau of Labor Statistics, Consumer 
Price Index Summary (visited July 8, 1998) /stats.bls.gov/
news.release/cpi.nws.html>, would result in a discount rate of 2.3 
percent.
    193. See Arnold, supra note 22, at 181.
    194. See id. at 184-85.
    195. See id. at 190.
    196. See supra text accompanying notes 183-184.
    197. In the case of environmental regulation, the government is not 
making the investment, but is instead requiring private parties to make 
it. The same analysis is applicable, however. See Arnold, supra note 
22, at 189-91.
    198. See id. at 180-84; Lind, supra note 22, at S-10, S-11.
    The Department of Energy continues to engage in this inquiry:
    Because the proposed appliance efficiency standards will primarily 
affect private, rather than public, investment, the Department 
continues to believe that using the average real rate of return on 
private investment as the basis for the social discount rate is most 
appropriate. If the primary impact of the standards were on Federal or 
other public expenditures, DOE agrees that real interest rates on long 
term government securities would likely be a better basis.
    60 Fed. Reg. 37,388, 37,394 (1995).
    199. See Arnold, supra note 22, at 184-85; Lind, supra note 22, at 
S-8, S-9.
    200. See Arnold, supra note 22, at 184-85, 190-91; Lind, supra note 
22, at S-8, S-9.
    201. See Ronald G. Cummings, Legal and Administrative Uses of 
Economic Paradigms: A Critique, 31 Nat. Resources J. 463, 471 (1991); 
Randolph M. Lyon, Federal Discount Rate Policy, The Shadow Price of 
Capital, and Challenges for Reforms, 18 J. Envtl. Econ. & Mgmt. S-29, 
S-30 (1990). For an interesting survey of the different choices of 
discount rates in Federal agencies, see Edward R. Morrison, Comment, 
Judicial Review of Discount Rates Used in Regulatory Cost-Benefit 
Analysis, 65 U. Chi. L. Rev. 1333, 1336-37, 1364-69 (1998).
    202. 59 Fed. Reg. 45,872, 45,895-97 (1994).
    203. See 43 C.F.R. 11.84(e)(2) (1998) (Department of the Interior). 
Ohio v. Department of the Interior, 880 F.2d 432, 464-65 (D.C. Cir. 
1989), upheld the Department of the Interior's choice of a 10 percent 
discount rate for natural resources damages, following OMB's pre-1992 
policy, see supra text accompanying note 182.
    204. See supra text accompanying notes 73-75.
    205. See supra text accompanying notes 133-143.
    206. See supra text accompanying notes 153-160.
    207. See supra text accompanying note 156.
    208. See Jones-Lee et al., supra note 159, at 55-57.
    209. In contrast, in the Cropper and Subramanian study, the 
respondents were asked to evaluate the ease with which each of the 
risks could be avoided. See supra text accompanying notes 136-138.
    210. The upward adjustment resulting from the unrepresentativeness 
of the risk preferences of the population exposed to workplace risks 
cannot be estimated as a result of the paucity of the empirical data, 
though logic compels the conclusion that such workers will have a 
lower-than-average willingness-to-pay to avoid risk. See supra Part 
I.E.2.b.
    211. See supra text accompanying notes 123-125.
    212. See supra text accompanying notes 103-106.
    213. For a 20 year lag, a discount rate of 2 percent reduces the 
valuation to 67 percent of the undiscounted amount, as compared to a 
reduction to 55 percent of the undiscounted amount for a 3 percent 
discount rate.
    214. See supra text accompanying notes 183-184.
    215. See supra text accompanying notes 80-83.
    216. The OMB approach, however, avoids the pitfall of using 
V[in'60,60'] as the basis for estimating V[in'40,40']. Such a procedure 
might lead to undervaluation because of changes over time in the income 
and saving levels of individuals. See supra Part I.E.1.b.
    217. The adjustments for the dread nature of the harm, the 
involuntary nature of the harm, the salary differential, and the impact 
of economic growth are 2, 2, 1.23, and 1.22, respectively. See supra 
text accompanying notes 204-213. The calculation assumes that all the 
factors are multiplicative. See supra text accompanying notes 206-210. 
This assumption should be the focus of empirical study.
    218. See B.T. Westerfield, Asbestos-Related Lung Disease, 85 
Southern Med. J. 616 (1992). Some of the adverse consequences of 
exposure to asbestos have latency periods of 30 and 40 years. See id. 
at 618.
    219. See supra Part I.E.2.b.
    220. See supra text accompanying notes 177-179.
    221. For discussion of the differences with the intergenerational 
setting, see infra text accompanying notes 281-283.
    222. See supra text accompanying notes 65-69.
    223. See supra text accompanying note 35 (discussing Barnes's 
testimony).
    224. See supra Part I.F.1.
    225. See supra Part I.G.
    226. See supra text accompanying notes 214-218.
    227. For applications of this concept in the legal literature, see 
Bruce Ackerman & Anne Alstott, The Stakeholder Society (forthcoming 
1999) (manuscript at 131-42, on file with the Columbia Law Review); 
Christine Jolls, Contracts as Bilateral Commitments: A New Perspective 
on Contract Modification, 26 J. Legal Stud. 203, 210, 219-24 (1997); 
Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 
Stan. L. Rev. 1471, 1538-41 (1998); Deborah M. Weiss, Paternalistic 
Pension Policy: Psychological Evidence and Economic Theory, 58 U. Chi. 
L. Rev. 1275, 1285-86, 1300-06 (1991).
    228. Intergenerationally, the situation is different because the 
individual making the decision is different from the individual 
affected by the decision. See infra text accompanying notes 281-283.
    229. Ackerman & Alstott, supra note 227, at 141.
    230. See supra note 192.
    231. For critiques of cost-benefit analysis, see Steven Kelman, 
Cost-Benefit Analysis: An Ethical Critique, Regulation, Jan./Feb. 1981, 
at 33; Duncan Kennedy, Cost-Benefit Analysis of Entitlement Problems: A 
Critique, 33 Stan. L. Rev. 387 (1981). For critiques of the techniques 
for valuing human lives, see sources cited supra note 64.
    232. See supra text accompanying notes 21-22.
    233. See William D. Nordhaus, Managing the Global Commons: The 
Economics of Climate Change 4 (1994) (``A complete analysis of the 
economics of climate change must recognize the extraordinarily long 
time lags involved in the reaction of the climate and economy to 
greenhouse gas emissions.'').
    234. For a comprehensive list, see 1 Philippe Sands, Principles of 
International Environmental Law 198-213 (1995).
    235. Stockholm Declaration of the United Nations Conference on the 
Human Environment, June 16, 1972, 11 I.L.M. 1461.
    236. United Nations Conference on Environment and Development: Rio 
Declaration on Environment and Development, June 13, 1992, 31 I.L.M. 
874.
    237. United Nations Conference on Environment and Development: 
Framework Convention on Climate Change, May 9, 1992, 31 I.L.M. 849.
    238. Putnam & Graham, supra note 6, at 60.
    239. Keeler & Cretin, supra note 5, at 303; see also id. at 304 
(``Delaying any program . . . increases its benefit to cost ratio.'').
    240. See Arnold, supra note 22, at 178.
    241. See Nordhaus, supra note 233, at 125 (``If investments in 
equipment or human capital yield 10 percent annually, it would be 
inefficient to make investments that yielded only 3 percent.''); id. at 
135.
    242. See id. at 125.
    243. See Hillman & Kim, supra note 5, at 200-02; Michael W. Jones-
Lee & Graham Loomes, Discounting and Safety, 47 Oxford Econ. Papers 
501, 511 (1995); Lipscomb, supra note 94, at S237.
    244. See Lewis A. Kornhauser & Richard L. Revesz, Evaluating the 
Effects of Alternative Superfund Liability Rules, in Analyzing 
Superfund, supra note 133, at 115, 118.
    245. See id.
    246. In some cases, in contrast, environmental remediation costs 
may fall over time as a result of technological innovation.
    247. Even if the cost were less than $100, a static evaluation 
would counsel against investing in remediation if the funds could be 
invested in an alternative project with a sufficient return.
    248. In practice, the problem is more complicated because the 
increase in costs and damages is likely to be continuous but the 
structure of the analysis remains the same.
    249. See William D. Nordhaus, Economic Approaches to Greenhouse 
Warming, in Global Warming: Economic Policy Responses 33, 58 (Rudiger 
Dornbusch & James M. Poterba eds., 1991) (``we are likely to be 
increasingly averse to climate change as the change becomes larger'').
    250. See Robert C. Lind, Intergenerational Equity, Discounting, and 
the Role of Cost-Benefit Analysis in Evaluating Global Climate Policy, 
23 Energy Pol'y 379, 382 (1995); David W. Pearce et al., The Social 
Costs of Climate Change: Greenhouse Damage and the Benefits of Control, 
in Climate Change 1995: Economic and Social Dimensions of Climate 
Change 179, 184-86 (James P. Bruce et al. eds., 1996) [hereinafter 
Climate Change 1995].
    251. See Pearce et al., supra note 250, at 214.
    252. See Lind, supra note 250, at 384.
    253. See James K. Hammitt, Outcome and Value Uncertainties in 
Global-Change Policy, 30 Climatic Change 125, 130 (1995).
    254. See K. J. Arrow et al., Intertemporal Equity, Discounting, and 
Economic Efficiency, in Climate Change 1995, supra note 250, at 125, 
132 (``society cannot set aside investments over the next three 
centuries, earmarking the proceeds for the eventual compensation of 
those adversely affected by global warming''); Farber & Hemmersbaugh, 
supra note 19, at 297 (same); Lind, supra note 250, at 381-82 
(questioning society's ability to make transfers across several 
generations).
    255. See Nordhaus, supra note 249, at 57.
    256. Tyler Cowen & Derek Parfit, Against the Social Discount Rate, 
in Justice Between Age Groups and Generations 144, 148 (Peter Laslett & 
James S. Fishkin eds., 1992); see Farber & Hemmersbaugh, supra note 19, 
at 291; James C. Wood, Intergenerational Equity and Climate Change, 8 
Geo. Int'l Envtl. L. Rev. 293, 321 (1996).
    257. David W. Pearce & R. Kerry Turner, Economics of Natural 
Resources and the Environment 223-24 (1990); see Morrall, supra note 
132, at 28 (without discounting ``all rules yielding continuous 
benefits are worth any amount of immediate costs'').
    258. For further discussion, see infra Part II.C.
    259. For example, Tyler Cowen and Derek Parfit note:
    No generation can be morally required to make more than certain 
kinds of sacrifice for the sake of future generations. And this is part 
of a more general view, which has nothing to do with time. On this 
view, no one is required to make great sacrifices merely to benefit 
others.
    Cowen & Parfit, supra note 256, at 149.
    260. See Robert Solow, An Almost Practical Step Toward 
Sustainability, 19 Resources Pol'y 162, 168 (1993).
    261. Maureen L. Cropper et al., Rates of Preference for Saving 
Lives, 80 Am. Econ. Rev. Papers & Proc. 469, 469 (1992) [hereinafter 
Cropper et al., Rates of Time Preference]. For an earlier version of 
the study, see Maureen L. Cropper et al., Discounting Human Lives, 3 
Am. J. Agric. Econ. 1410 (1991).
    262. See Cropper et al., Rates of Time Preference, supra note 261, 
at 469.
    263. See id. at 471 tbl.1. For studies using shorter timeframes, 
see Cairns, supra note 164, at 222; John A. Cairns & Marjon M. van der 
Pol, Saving Future Lives: A Comparison of Three Discounting Models, 6 
Health Econ. 341, 343 (1997); Horowitz & Carson, supra note 11, at 408; 
Jan Abel Olsen, Time Preferences for Health Gains: An Empirical 
Investigation, 2 Health Econ. 257, 259 (1993).
    264. See Johannesson & Johansson, supra note 13, at 331. For an 
evaluation of the extent to which the framing of the question affects 
the results, see Magnus Johannesson & Per-Olov Johansson, Saving Lives 
in the Present Versus Saving Lives in the Future--Is There a Framing 
Effect, 15 J. Risk & Uncertainty 167, 169 (1997) [hereinafter 
Johannesson & Johansson, Risk & Uncertainty].
    265. See Cropper & Portney, supra note 73, at 375. The study is Ola 
Svenson & Gunnar Karlsson, Decision-Making, Time Horizons, and Risk in 
the Very Long-Term Perspective, 9 Risk Analysis 385 (1989).
    266. See supra text accompanying notes 92-97. As three prominent 
commentators recently explained:
    If one discounts present world GNP over 200 years at 5 percent per 
annum, it is worth only a few hundred thousand dollars, the price of a 
good apartment. On the basis of such valuations, it is clearly 
irrational to be concerned about global warming, nuclear waste, species 
extinction, and other long-term phenomena. Yet we are worried about 
these issues, and are actively considering devoting very substantial 
resources to them. There appears to be a part of our concern about the 
future that is not captured by discounted utilitarianism.
    Andrea Beltratti et al., Sustainable Growth and the Green Golden 
Rule, in The Economics of Sustainable Development 147, 149 (Ian Goldin 
& L. Alan Winters eds., 1995).
    267. See Cairns, supra note 164, at 224-25 (``the further in the 
future the benefit the lower the rate at which most individuals 
discount it''); Cairns & van der Pol, supra note 263, at 342 (referring 
to ``increasing evidence . . . that individuals do not appear to apply 
a constant discounting model''); Cropper et al., Rates of Time 
Preference, supra note 261, at 471 (``Discount rates are much higher 
for short horizons than for long horizons.''); Johannesson & Johansson, 
Risk & Uncertainty, supra note 264, at 174 (``estimated discount rates 
decrease[] with the time horizon''); Olsen, supra note 263, at 262 
(``The longer the time horizon, the lower are the implied [discount] 
rates.''). One study found a similar result in an intragenerational 
context. See Loewenstein & Thaler, supra note 176, at 184 (``discount 
rates declined sharply with the length of time to be waited'').
    268. See supra text accompanying notes 264-265 (discussing Svenson 
& Karlsson study).
    In arguing in favor of a constant discounting model, William 
Nordhaus states that ``it would be unrealistic to make decisions based 
on the premise that there is, in fact, no time preference given that 
many social decisions are, in fact, tilted in favor of present 
generations.'' Nordhaus, supra note 233, at 123. It is therefore worth 
emphasizing that the studies discussed in this section reveal a strong 
moral intuition against such discounting.
    269. See Arrow et al., supra note 254, at 137-38; Cropper & 
Sussman, supra note 65, at 162; Fuchs & Zeckhauser, supra note 161, at 
265; Jones-Lee & Loomes, supra note 243, at 501; Lind, supra note 250, 
at 385-86.
    270. See Arrow et al., supra note 254, at 130, 134.
    271. In theory, the rate could also be negative, which would imply 
the privileging of the utilities of later generations.
    272. See Arrow et al., supra note 254, at 134-35; Lind, supra note 
250, at 385. If one adds utilities over an infinite time period, the 
social welfare function will be ill-defined; to avoid this problem, 
some discounting would be required. See Arrow et al., supra note 254, 
at 136; Jones-Lee & Loomes, supra note 243, at 507, n.10. As Kenneth 
Arrow and his coauthors explain, however, ``because even a very small 
positive discount rate . . . would resolve the mathematical issue, this 
objection has little practical moment.'' Arrow et al., supra note 254, 
at 136.
    273. Arrow et al., supra note 254, at 130; see Nordhaus, supra note 
233, at 123-24; David Pearce et al., Sustainable Development: Economics 
and Environment in the Third World 30 (1990). For the derivation of the 
relationship, see Arrow et al., supra note 254, at 134-35.
    274. See Arrow et al., supra note 254, at 130; Lind, supra note 
250, at 384.
    275. See Cline, supra note 106, at 249; Arrow et al., supra note 
254, at 134.
    276. Fuchs & Zeckhauser, supra note 161, at 265 (emphasis added).
    277. See supra text accompanying notes 21-22.
    278. See Robert C. Lind, Intertemporal Equity, Discounting, and 
Economic Efficiency in Water Policy Evaluation, 37 Climatic Change 41, 
52 (1997).
    279. See Thomas C. Schelling, Intergenerational Discounting, 23 
Energy Pol'y 395, 396 (1995) (``To be less interested in the welfare of 
East Africans than former Yugoslavians is less like 'discounting' than, 
perhaps, 'depreciating.' When we count future welfare less than our own 
we are depreciating generations that are distant in time, in 
familiarity, in culture, in kinship, and along other dimensions.'').
    280. As a result, the issue of growth discounting is not presented 
by the example.
    281. Of course, taking a ``multiple selves'' analysis to its 
logical conclusions, see supra text accompanying notes 227-230, would 
turn any intragenerational problem into an intergenerational problem.
    282. See Cowen & Parfit, supra note 256, at 155 (``Pure time 
preference within a single life does not imply pure time preference 
across different lives.''). As Joseph Lipscomb notes in the medical 
context, with respect to future generations, ``discounting represents a 
global political decision about the relative weights current 
decisionmakers should attach to future population cohorts.'' Lipscomb, 
supra note 94, at S246. He adds that this discount rate ``need have no 
relationship to how a given population member (or a statistically 
representative member) values current versus future gains in health 
status.'' Id.
    283. See supra text accompanying notes 227-230 (discussing 
``multiple selves'').
    284. See Richard Dubourg & David Pearce, Paradigms for 
Environmental Choice: Sustainability versus Optimality, in Models of 
Sustainable Development 21, 24 (Sylvie Faucheux et al. eds., 1996) 
(``For maximizing a single utility function . . . over infinite time 
cannot help but suggest that we are dealing with a single generation 
which exists forever, or even a single individual.''); Lind, supra note 
250, at 385 (discussing why other approaches are preferable). For 
example, Kenneth Arrow and his co-authors acknowledge that the rate of 
time preference ``is sometimes said to represent discounting for 
impatience or myopia.'' Arrow et al., supra note 254, at 131. These are 
precisely the sorts of psychological characteristics that justify 
intragenerational discounting.
    285. The problem is fairly pervasive. For example, Kenneth Arrow 
and his co-authors note that discounting for time preference reflects 
that ``one cares less about tomorrow's consumer than today's, or about 
one's own welfare tomorrow than today.'' Arrow et al., supra note 254, 
at 130. This formulation conflates the intergenerational and 
intragenerational problems.
    286. See Lipscomb, supra note 94, at 238 (constant discounting ``is 
basically a political judgment about intergenerational equity'').
    287. Arrow et al., supra note 254, at 131; Parfit, supra note 21, 
at 485.
    288. An even narrower view of the role of future generations in the 
utilitarian calculus is that of Maureen Cropper and Frances Sussman. 
They explain their approach:
    Each generation receives utility from its own consumption and that 
of its immediate descendants. Because this is true of all generations, 
the current generation necessarily takes into account the utilities of 
all future generations in making its consumption and bequest plans.
    Cropper & Sussman, supra note 65, at 170.
    This approach has been criticized as unduly privileging the 
position of the current generation. See Zeckhauser, supra note 102, at 
440-41 (``There is the significant issue . . . whether . . . this sort 
of altruism does not substantially underrepresent the impacts that will 
be truly felt.'').
    289. See supra text accompanying notes 261-268.
    290. See Arrow et al., supra note 254, at 137.
    291. See supra text accompanying notes 21-22; Schelling, supra note 
279, at 396.
    292. See Arrow et al., supra note 254, at 136; Jones-Lee & Loomes, 
supra note 243, at 502 n.4; George Tolley & Robert Fabian, Future 
Directions for Health Value Research, in Tolley et al., supra note 70, 
at 300, 311.
    293. See Arrow et al., supra note 254, at 136 (``Some have argued 
that the discount rate should be adjusted for the probability of 
extinction. Plausible estimates of this effect would add very little to 
the discount rate.'').
    294. See supra text accompanying notes 252-253.
    295. See Parfit, supra note 21, at 482; Jones-Lee & Loomes, supra 
note 243, at 502 n.4; John F. Morrall III, Cotton Dust: An Economist's 
View, in The Scientific Basis of Health and Safety Regulation 93, 107-
08 (Robert W. Crandall & Lester B. Lave eds., 1981).
    296. See supra text accompanying notes 252-253.
    297. See Heinzerling, supra note 7, at 2044-45.
    298. It is conceivable that in some instance one could make a 
particularized, factually grounded case for a probabilistic reduction 
of harms.
    299. John Rawls makes the following case against a pure time 
preference:
    There is no reason for the parties [in the original position] to 
give any weight to mere position in time. They have to choose a rate of 
saving for each level of civilization. If they make a distinction 
between earlier and more remote periods because, say, future states of 
affairs seem less important now, the present state of affairs will seem 
less important in the future. Although any decision has to be made now, 
there is no ground for their using today's discount of the future 
rather than the future's discount of today. The situation is 
symmetrical and one choice is as arbitrary as the other. Since the 
persons in the original position take up the standpoint of each period, 
being subject to the veil of ignorance, this symmetry is clear to them 
and they will not consent to a principle that weighs nearer periods 
more or less heavily.
    John Rawls, A Theory of Justice 294 (1971); see also id. at 284-98 
(setting forth a theory of intergenerational justice). For commentary, 
see John Broome, Counting the Cost of Global Warming 31, 96-98 (1992); 
B.M. Barry, Justice Between Generations, in Law, Morality, and Society: 
Essays in Honour of H.L.A. Hart 268, 276-81 (P.M.S. Hacker & J. Raz 
eds., 1977).
    300. See supra Part I.H.
    301. Some prominent economists are at the very least ambivalent 
about discounting for pure time preference. For example, Robert Solow 
notes:
    You may wonder why I allow discounting at all. I wonder, too: no 
generation 'should' be favored over any other. The usual scholarly 
excuse--which relies on the idea that there is a very small fixed 
probability that civilization will end during any little interval of 
time--sounds far-fetched. We can think of intergenerational discounting 
as a concession to human weakness or as a technical assumption of 
convenience (which it is).
    Solow, supra note 260, at 165; see also Cline, supra note 106, at 
249 (``Impatience or 'myopia' may be a legitimate basis for a single 
individual's preferring consumption earlier rather than later in his 
lifetime, but from society's standpoint it is hardly a justifiable 
basis for making intergenerational comparisons''); Lind, supra note 22, 
at S-20 (intergenerational discounting ``would seem a highly 
questionable if not immoral public policy''); Robert M. Solow, 
Intergenerational Equity and Exhaustible Resources, 41 Rev. Econ. Stud. 
29, 40 (1973) (expressing doubts as to whether time discounting is 
appropriate). Kenneth Arrow and his co-authors do not analyze 
explicitly what the rate of time preference should be, but assume at 
times that it would be zero. See Arrow et al., supra note 254, at 131.
    302. In practice, the distinction is not as crisp because 
generations are not successive, but overlapping. The conceptual 
distinction, however, remains important. For models of overlapping 
generations, see Burton, supra note 13; Cropper & Sussman, supra note 
65, at 169-72. When generations overlap, the current generation tends 
to convey benefits on the next generation even when it is motivated 
only by its self-interest. See Barry, supra note 299, at 268 (as a 
result of the overlap ``prudent provision for the welfare of all those 
currently alive therefore entails some considerable regard for the 
future'').
    303. See Geoffrey H. Heal, Discounting and Climate Change: An 
Editorial Comment, 37 Climate Change 335, 335 (1997).
    304. See supra text accompanying notes 273-275.
    305. See Arrow et al., supra note 254, at 134-35.
    306. See id. at 131-32, 141 n.10.
    307. See id. at 132.
    308. See supra Part I.E.1.a.
    309. See Cline, supra note 106, at 116-19; Pearce et al., supra 
note 250, at 195, 198.
    310. See supra text accompanying note 100.
    311. See Heinzerling, supra note 7, at 2051.
    312. See Cline, supra note 106, at 101-06 (discussing species loss 
and damage to forests).
    313. See Arnold, supra note 22, at 177; Heinzerling, supra note 7, 
at 2051.
    314. See Cline, supra note 106, at 110-12.
    315. See Schelling, supra note 279, at 399.
    The 1990 Amendments to the Montreal Protocol on Substances that 
Deplete the Ozone Layer marked the first time that a developing 
country's adherence to the provisions of an international environmental 
treaty was linked to the receipt of financial resources. See 1 Sands, 
supra note 234, at 269. As Philippe Sands points out, these amendments 
``introduced a radical and innovative change which has had profound 
consequences on the negotiation of subsequent global environmental 
treaties.'' Id. This change is evident in the provisions of the 1992 
Climate Change Convention which requires developed countries to provide 
financial assistance and technological assistance to developing 
countries. See id. at 740-41.
    316. See World Bank, GNP Per Capita (visited July 24, 1998) 
/www.worldbank.org/depweb/gnp/gnpaas01.htm>.
    317. The differences in the patterns of per capita energy 
consumption between developed and developing countries are stark. See 
International Energy Agency, Climate Change Policy Initiatives 28 tbl.3 
(1992). Over time, this share of the responsibility might decrease as 
developing countries industrialize.
    318. Perhaps, however, there is a concern that direct foreign aid 
would not be spent wisely by the recipient, or could create undesirable 
incentives. If these problems were sufficiently serious, long-term 
environmental investments could be the most desirable way of providing 
foreign assistance.
    319. See Louis Kaplow, The Optimal Supply of Public Goods and the 
Distortionary Cost of Taxation, 49 Nat'l Tax J. 513, 516-19 (1996); 
Louis Kaplow & Steven Shavell, Property Rules Versus Liability Rules: 
An Economic Analysis, 109 Harv. L. Rev. 713, 744-45 (1996). For 
discussion of the distributional consequences of environmental policy, 
see Richard L. Revesz, Foundations of Environmental Law and Policy 102-
03 (1997).
    320. See Farber & Hemmersbaugh, supra note 19, at 300.
    321. The substitutability of these future benefits is discussed 
below in the context of the principle of sustainable development. See 
infra Part II.E.
    322. See infra text accompanying notes 343-344.
    323. See supra text accompanying notes 254-256.
    324. See, e.g., Gary D. Meyers & Simone C. Muller, The Ethical 
Implications, Political Ramifications and Practical Limitations of 
Adopting Sustainable Development as National and International Policy, 
4 Buff. Envtl. L.J. 1, 10 (1996) (``The core idea of sustainability, 
then, is the concept that current decisions should not impair the 
prospects for maintaining or improving future living standards.''); 
Edith Brown Weiss, Intergenerational Equity: A Legal Framework for 
Global Environmental Change, in Environmental Change and International 
Law: New Challenges and Dimensions 385, 385 (Edith Brown Weiss ed., 
1991) (``Sustainable development rests on a commitment to equity with 
future generations.'').
    For a strong critique of the concept of sustainable development, 
see Wilfred Beckerman, Through Green-Colored Glasses: Environmentalism 
Reconsidered 143-60 (1996).
    325. See Dubourg & Pearce, supra note 284, at 27 (``Sustainability 
has become a common policy objective of many government institutions, 
international agencies, and non-governmental organisations.''); supra 
text accompanying notes 234-237.
    326. Some commentators link the attractiveness of sustainable 
development with criticisms of discounting approaches: ``There appears 
to be a part of our concern about the future that is not captured by 
discounted utilitarianism. Perhaps as much as anything it is this that 
is driving an interest in formalising the concept of sustainability.'' 
Beltratti et al., supra note 266, at 149.
    327. See David Hodas, The Climate Change Convention and Evolving 
Legal Models of Sustainable Development, 13 Pace Envtl. L. Rev. 75, 77 
(1995); Averil Rothrock, Oregon's Goal Five: Is Ecologically 
Sustainable Development Reflected?, 31 Willamette L. Rev. 449, 451 
(1995); Mary Pat Williams Silveira, International Legal Instruments and 
Sustainable Development: Principles, Requirements, and Restructuring, 
31 Willamette L. Rev. 239, 243 (1995); Christopher D. Stone, 
Deciphering ``Sustainable Development'', 69 Chi.-Kent L. Rev. 977, 978 
(1994). For general discussion of the principle of sustainable 
development, see 1 Sands, supra note 234, at 198-208.
    One commentator has suggested that over 70 definitions of the term 
exist. See Susan L. Smith, Ecologically Sustainable Development: 
Integrating Economics, Ecology, and Law, 31 Willamette L. Rev. 261, 276 
(1995); see also John Peezey, World Bank Environment Paper Number 2: 
Sustainable Development Concepts: An Economic Analysis, app. A (1992) 
(presenting an extensive list of definitions).
    328. World Commission on Environment and Development, Our Common 
Future (1987).
    329. Id. at 43.
    330. See Weiss, supra note 324, at 401-05; Solow, supra note 260, 
at 162.
    331. The following two paragraphs are adapted from Revesz, supra 
note 319, at 307-08.
    332. See Weiss, supra note 324, at 401-05; Edith Brown Weiss, In 
Fairness to Future Generations: International Law, Common Patrimony, 
and Intergenerational Equity 40-45 (1988).
    333. See Solow, supra note 260, at 162-63.
    334. See id. at 167-68.
    335. See id. at 168.
    336. Compare Weiss, supra note 324, at 404 (``The principle of 
conservation of quality requires that we leave the quality of the 
natural and cultural environments in no worse condition than we 
received it.''), with Solow, supra note 260, at 167 (``If 
sustainability means anything more than a vague emotional commitment, 
it must require that something be conserved for the very long run.'').
    337. Compare Weiss, supra note 324, at 404 (``We may exhaust more 
reserves of a natural resource and cause modest levels of pollution, 
but pass on a higher level of income, capital, and knowledge sufficient 
to enable future generations to develop substitutes for the depleted 
resource and methods for abating or removing pollutants.''), with 
Solow, supra note 260, at 168 (``Most routine natural resources are 
desirable for what they do, not for what they are. It is their capacity 
to provide usable goods and services that we value. Once that principle 
is accepted, we are in the everyday world of substitutions and 
tradeoffs.'').
    338. Compare Weiss, supra note 324, at 403 (we ``must proceed 
extremely cautiously'' with respect to the possible destruction of a 
``unique natural resource''), with Solow, supra note 260, at 168 (``It 
makes perfectly good sense to insist that certain unique and 
irreplaceable assets should be preserved for their own sake'').
    339. See Solow, supra note 260, at 163 (``So far . . . the proper 
adjustments needed to measure the stocks and flows of our natural 
resources and environmental assets are not being made in the published 
national accounts.'').
    340. See Michael Jacobs, The Green Economy: Environment, 
Sustainable Development and the Politics of the Future 84 (1991) (``The 
final objection which might be made to our definition of sustainability 
is that it ignores population growth.''); Michael Redclift, Sustainable 
Development: Exploring the Contradictions 29 (1987) (``The concept of 
'sustainability' makes little sense . . . unless we also consider the 
impact of rapid population growth on the physical resource base.''); 
Nafis Sadik, Population, Environment, and Sustainable Development, in 
In the Aftermath of the Earth Summit 21, 23 (Andreas Gettkant ed., 
1993) (``The universal acceptance of the strong links between 
sustainable development and the preservation of the environment does 
not extend to the links between these two and the population 
policy.''). But see President's Council on Sustainable Development, 
Population and Consumption Task Force Report 13-32 (1997) (discussing 
how population growth is linked to sustainability).
    The link to population does not play a role in the discussions by 
Weiss, supra note 324, at 401-05, and Solow, supra note 260.
    341. For an exploration of the ethical consequences of this link, 
see Parfit, supra note 21, at 351-441; Broome, supra note 86, at 161-
62.
    342. See Jacobs, supra note 340, at 84 (``It could be argued that 
what sustainability demands is not simply a constant level of 
environmental capacity but a constant per capita or per person 
level.''); Richard Baldwin, Does Sustainability Require Growth?, in The 
Economics of Sustainable Development, supra note 266, at 51, 52 (``The 
simple fact is that current population growth rates, if they were 
maintained, would lead to an unsustainable world population.'').
    343. See Gregory D. Fullem, The Precautionary Principle: 
Environmental Protection in the Face of Scientific Uncertainty, 31 
Willamette L. Rev. 495, 500-01 (1995); Alexandre Kiss, The Rights and 
Interests of Future Generations and the Precautionary Principle, in The 
Precautionary Principle and International Law: The Challenge of 
Implementation 19, 27 (David Freestone & Ellen Hey eds., 1996); Bernard 
A. Weintraub, Science, International Environmental Regulation, and the 
Precautionary Principle: Setting Standards and Defining Terms, 1 N.Y.U. 
Envtl. L.J. 173, 177-78 (1992). For a discussion of the status of the 
precautionary principle in international environmental law, see 1 
Sands, supra note 234, at 208-13.
    344. See supra text accompanying notes 252-253.
    345. These issues are explored briefly in Revesz, supra note 319, 
at 330-31.
    346. In this context, the principle of sustainable development has 
the same features as the maximin principle.
    347. See supra text accompanying notes 314-316.
    348. See supra text accompanying notes 281-286.
    349. Other objections to growth discounting are discussed at supra 
text accompanying notes 308-311.
    350. See supra Part II.E.
    351. See supra text accompanying notes 319-320.
    352. See supra text accompanying notes 316-317.
    353. See supra text accompanying note 317.
                               __________
           Statement of Bernard Melewski, Adirondack Council
    Good Morning. My name is Bernard C. Melewski. I am counsel and 
legislative director of the Adirondack Council. I would like to thank 
the chairman, and the members of the committee for the opportunity to 
be here with you this morning and to provide testimony regarding the 
reauthorization of the Clean Air Act.
    I would like to begin with a brief explanation of the Adirondack 
Park, the role of the Adirondack Council in New York, and why we are 
particularly interested in the topic of acid rain and in the Clean Air 
Act.
    The Adirondack Park is the largest park of any kind in the 
contiguous United States. It is nearly three times the size of 
Yellowstone National Park and covers one fifth of the State of New York 
making it equal in size to the State of Vermont. The Adirondack Park is 
roughly six-million acres of public and private land containing the 
largest assemblage of Old Growth forest east of the Mississippi River. 
The Adirondacks include the headwaters of five major drainage basins. 
Lake Champlain and the Hudson, St. Lawrence, Mohawk and Black rivers 
all draw water from the Adirondack Park. Within the Park are more than 
2,800 lakes and ponds, and more than 1,500 miles of rivers fed by an 
estimated 30,000 miles of brooks and streams. The Park contains 46 
mountain peaks more than 4,000 feet tall. Forty-five percent of the 
Park is publicly owned Forest Preserve protected as ``Forever Wild'' by 
the New York State Constitution since 1895. One million acres of these 
public lands are classified as Wilderness.
    The Adirondack Council was founded in 1975; it is a private, not-
for-profit organization dedicated to enhancing the natural and human 
communities of the Park through research, education, advocacy and legal 
action. Our main offices are located within the Adirondack Park, with a 
satellite office in Albany, New York, the State capitol.
    The Council receives moral and financial support from its more than 
18,000 members and from private foundations. The Council's national and 
regional member organizations include the Natural Resources Defense 
Council, The Wilderness Society, National Audubon Society, National 
Parks and Conservation Association, Citizens Campaign for the 
Environment and the Association for the Protection of the Adirondacks.
    Our interest in The Clean Air Act and the problem of acid rain is 
long held. We were active contributors to the dialogue on acid rain in 
New York State in the early years of the 1980s, and helped craft the 
first acid rain law in the country which was adopted in 1984. The New 
York law identified both sulfur dioxide and nitrogen oxide as 
precursors to acid rain, sought limits on total emissions from 
utilities sited within the State and even proposed an innovative 
trading mechanism that Congress would adopt nationwide in the Clean Air 
Act Amendments of 1990.
    The Adirondack Council was also an active participant in the 
national debate that led to the adoption of the acid rain program in 
Title IV of the Clean Air Act Amendments 8 years ago. Our publication, 
``Beside the Stilled Waters,'' which was produced and distributed in 
cooperation with our member organizations, brought the problem of acid 
rain to the attention of the nation and to Congress.
    The enactment of Title IV of the Clean Air Act Amendments of 1990, 
known as the Acid Rain Program, were not without controversy. Congress 
adopted an innovative ``cap and trade'' program, modeled after the New 
York legislation, which would abandon the so-called ``command and 
control'' approach to regulation, in favor of a free wheeling pollution 
allowance trading program that would provide utilities with the 
flexibility to make compliance strategies part of their long-term 
business planning. Both the need for and the cost of the program were 
hotly debated.
    The Adirondack Council was among the critics. We raised concern 
that the cap on total emissions might not be low enough to protect 
sensitive areas. We used our membership on EPA's advisory committee to 
seek changes as the agency developed regulations to implement Title 
Four. Among other issues, the Adirondack Council felt that too many 
credits were in the system and that EPA was not pushing to require the 
most modern monitoring systems. Together with the Natural Resources 
Defense Council, we reluctantly sought changes in Federal court. 
(Environmental Defense Fund, et al. V. Browner, No. 93-1203 and 
Consolidated Cases).
    I am pleased to say that years of good-faith negotiation with the 
USEPA and the affected industry resulted in very positive changes to 
the program. The Adirondack Council formally withdrew our legal 
challenge to the regulatory program just a few weeks ago.
    Over the past year, the program of Title Four has been hailed as a 
new beginning in cost-effective air regulation that puts the market to 
work to the benefit of the health and welfare of millions of Americans. 
Emission trading has been heralded as the solution to pollution 
reduction within the United States and indeed the globe.
    We are here to say that before we run to embrace trading in other 
pollutants and in other markets, we need to take a hard look at the 
results of the great sulfur experiment.
    We remember well that day when a deputy administrator for the 
Environmental Protection Agency grandly pronounced in a press release 
that the regulations implementing the new Clean Air Act Amendments 
would mean ``the end to acid rain in the Adirondacks.''
    Certainly that was the intention of the Senate and the House. But 
wisely, Congress ordered in 1990 that a series of reports be prepared 
over the next few years, that would advise you of the projected results 
of the acid rain program.
    The wisdom of requiring these reports at that time is now apparent. 
Until recently, we had some doubt that the members of the Senate would 
ever see them.
    The first report was due in 1993, from the Environmental Protection 
Agency (ordered under sec. 404, Title IV appendix B of the 1990 CAAA) 
and was entitled the Acid Deposition Standard Feasibility Study Report 
to Congress. The report, dated October, 1995, was finally released in 
1996, in partial settlement of the lawsuit brought by the Natural 
Resources Defense Council, the Adirondack Council and the State of New 
York.
    The report concluded that the pollution reductions accompanying the 
1990 Clean Air Act Amendments would not be sufficient to allow recovery 
of certain sensitive ecosystems (including the Adirondacks) and that 
many would continue to get worse. The report was particularly 
compelling for New Yorkers because it revealed that despite the 
reductions expected from the 1990 Amendments the loss of nearly 50 
percent of its lakes and acidification of most streams in the 
Adirondack Park could be expected.
    The second of two reports to Congress, the report of the National 
Acid Precipitation Assessment Program (NAPAP) was due in 1996, and was 
finally submitted to Congress as you left for the August recess in 1998 
(ordered under Sec. 901J of the 1990 CAAA). It too was released under 
the threat of litigation from the State of New York. Despite its May 
1998 title, the document would not be realistically available to the 
public until a year later (May, 1999), almost 9 months after its 
transmission to Congressional committees.
    In short summary, the NAPAP report peer reviewed, confirmed and 
substantially elaborated upon the findings of the earlier report to 
Congress submitted by the EPA.
    We believe that a fair reading of the two reports to Congress lead 
to two very clear conclusions:
    First, that the mechanism of a national cap in emissions coupled 
with the pollution allowance trading program has been an outstanding 
success. All facilities are in compliance and there is every reason to 
believe that the target level of emissions will be reached. The 
administrative and implementation costs of the program are less than a 
traditional regulatory approach. The actual cost of the program is 
substantially less than projected at the time of adoption.
    According to EPA's 1998 Compliance report for the Acid Rain 
Program, all 713 utility boilers and turbines affected by the 
SO2 and NOx regulations met their emissions goals for 1998 
as they have for every year since the program's inception. The simple, 
efficient design of the program, coupled with large automatic penalties 
for exceedences and the diligence of EPA administrators and the 
regulated community are all factors in this success. We can look 
forward to similar results when Phase II of the program, which will 
include many more power plants, begins.
    The administrative and implementation costs are far below those 
associated with traditional regulatory approaches because in many ways 
the program is self-implementing. Devices known as Continuous Emissions 
Monitors (CEMS) count each ton of pollution as it is emitted from the 
smokestack. At the end of each year a utility must have enough credits 
(either initially allocated or purchased) to cover those emissions. The 
accounting of allowance holdings and trading is in a database 
maintained by EPA.
    The compliance costs of the program are proving to be far below 
those estimated when Title IV was adopted. EPA estimated that the fully 
implemented program would cost four billion dollars a year; industry 
estimates were much higher. According to the Massachusetts Institute of 
Technology, compliance costs have so far been less than $1 billion per 
year. Again, the design of the program helped achieve these relatively 
low compliance costs. Other factors, such as rail transportation 
improvements that reduced the cost of transporting low-sulfur coal were 
crucial here as well. Projections (by EPA and ICF Resources) of what 
new SO2 and NOx reductions would cost beyond those called 
for in Title Four indicate that deep new reductions could be achieved 
at or near the initial $4 billion estimate.
    While we hold no special expertise in the field of the health 
effects of air pollution, a brief review of the literature reveals some 
interesting facts. EPA studies (Human Health Benefits from Sulfate 
Reductions Under Title IV of the Clean Air Act, 1995) indicate that 
every dollar spent on reducing sulfate emissions can result in tens of 
dollars in savings in health care costs. With asthma cases on the rise 
nationwide we need to be aware that even brief exposure to relatively 
low levels of sulfur dioxide has been repeatedly shown to trigger 
asthma attacks.
    The market for trading allowances is improving as well. Each year 
there are more trades between utilities occurring and the value of each 
allowance is rising steadily. In fact, the Adirondack Council is a 
market participant.
    Over the past 2 years, we have acquired thousands of pollution 
allowance credits, most of them donated as a community good will 
gesture by utilities in New York. Unlike most other holders of 
allowances, it is our intention to retire all credits we may obtain by 
transferring them to a retirement account we maintain with USEPA. The 
Adirondack Council has permanently retired one-ton of sulfur dioxide on 
behalf of thousands of individuals around the nation, including New 
York Governor George Pataki.
    The Second major finding of the two reports is that despite the 
success of the regulatory scheme, the overall cap in emissions is too 
high to accomplish the primary goal, which was to protect sensitive 
resource areas from the harmful effects of acid rain. The national cap 
on emissions of sulfur-dioxide from power plants must be cut. The 
reports agree that nitrogen oxide emissions are a significant 
contributor to acid rain and must be addressed.
    The NAPAP report also confirms that acid rain is not just an 
Adirondack problem.
    The damage that sulfur and nitrogen pollution causes is far from a 
regional issue. It is an issue of national, even international 
importance. Excess nitrogen in waters and in soils--``nitrogen 
saturation''-can be found in the Northeast and in West Virginia's 
Allegheny Mountains, Tennessee's Great Smoky Mountains, Colorado's 
Front Range of the Rockies and even as far west as the San Bernardino 
and San Gabriel Mountains of California. High levels of nitrogen 
deposition are causing nitrate to leach into stream water from these 
watersheds. This nitrate leaching acidifies streams and strips base 
cations from soils. In snow covered areas the flush of nitric acid 
stored in the snowpack is the leading cause of ``acid pulses'' which 
are responsible for fish kills during spring thaws.
    NAPAP found that high elevation areas in the Northeast and the 
Appalachians are bathed in acidic cloud water for extended periods of 
time. Sulfuric acid from sulfur dioxide emissions is the significant 
cause of the widespread loss of red spruce trees in these areas. The 
mechanism for the die back is the leaching of calcium from the spruce 
needles and aluminum from the soils by the acidic fog which makes the 
trees susceptible to frost and winter injury.
    The coastal estuaries of the entire east coast suffer from airborne 
inputs of nitrogen that can make up nearly 40 percent of the total 
nitrogen loaded into their systems. In estuary systems such as the Long 
Island Sound, Narragansett Bay, the Chesapeake Bay and Tampa Bay in 
Florida, nitrogen-based pollution is overloading the water with 
nutrients. This causes ``eutrophication''--an overabundance of algae. 
When algae dies and decays, it depletes the water of precious oxygen 
needed by all aquatic animals. This condition is known as hypoxia. 
These blooms are associated with fin fish kills, shellfish kills and 
human illness.
    NAPAP also concluded that areas of the United States that are not 
seeing damage now are likely to in the future due to an effect known as 
soil acidification. Over the long term, acidic deposition is slowly 
leaching away key soil nutrients like calcium and magnesium (known as 
base cations) that are essential for plant growth. This nutrient 
depletion is occurring in high and mid elevation forests in New 
England, New York and the Southern Appalachians. NAPAP cited studies 
concluded that 50 9 percent of the commercial pine forest soil in all 
of the southeast has low enough reserves of these chemicals to warrant 
concern.
    Acid deposition, whether from sulfur or from nitrogen based 
pollution, not only leads to base depletion, but also the release of 
toxic compounds from soils to living things. For example, the release 
of aluminum from soils rapidly accelerates when pH drops below 5. The 
release of aluminum interferes with plant biochemistry. It is also the 
leading cause of fish mortality in affected lakes. In other words, it 
is not the acidity directly, but the aluminum toxicity that is 
responsible for the damage. This effect is very wide-spread. NAPAP 
cited studies conducted in the Shenendoah National Park show that fish 
species richness, population density, condition, age distribution, size 
and survival rate were all reduced in streams no longer able to 
neutralize acidity. Another NAPAP study of streams in the Adirondacks, 
Catskills and Northern Appalachians in Pennsylvania showed that 
episodic acidification ``acid pulses'' had long term adverse effects on 
fish populations including significant fish mortality.
    Lake acidification, whether from sulfur or nitrogen is also 
implicated in the increase in mercury concentrations found in fish. 
Acidity leads to greater conversion of mercury from its less toxic 
elemental form to methyl mercury, which is much more toxic. Fish 
consumption warnings due to mercury contamination are common in many 
States and are on the rise. The bio-accumulation of mercury in some 
species of fish in New York has reached levels of grave concern to 
human health. In the western mountains of the Adirondack Park and in 
the Catskill Mountain reservoirs of New York City's water supply, the 
levels of mercury in fish exceed that which is safe for human 
consumption, and fishermen are urged to limit eating perch and bass. 
The acid rain problem is now a public health problem.
    The cost to Americans from acid rain is not just the loss of 
pristine lakes in one of its greatest parks, or the almost 
imperceptible die out of sensitive species of trees, or even the haze 
that obscures the views of our national parks, it is also in the loss 
of our great monuments.
    Acid rain is also falling on the District of Columbia. Acid rain is 
eating away at the marble of the Capitol building and that of many of 
the great monuments on the mall. The Lincoln memorial corrodes more 
every year. So it is with buildings and monuments throughout the 
Capitol, so numerous and so obvious that until recently you could 
obtain an illustrated walking tour guide to the acid rain damage to our 
nations capitol, thoughtfully provided free of charge. (Acid Rain and 
our Nation's Capital, US Dept. Of Interior / US Geological Survey. 
1997)
    The monuments to the fallen on the great battle sites of the Civil 
War, Gettysburg and Vicksburg, lose their inscriptions and carved 
features from the acid bath they endure each rainy day. The Statute of 
Liberty simply slowly melts away, day by day. This is why the fight to 
stop acid rain has been joined by many of the nation's prestigious 
organizations dedicated to historic preservation.
    . The findings of the reports to Congress have been seconded by 
other studies that have found similar results; Environment Canada, in 
its 1997 report ``Towards a National Acid Rain Strategy,'' said that 
reducing sulfur emissions significantly beyond the current Clean Air 
Act requirements in both countries would be needed for all of eastern 
Canada to be protected from acid rain. In southern Canada, an area the 
size of France and Britain combined continues to receive harmful levels 
of acid deposition. As many as 95,000 lakes in the region will remain 
damaged.
    A study recently released by Trout Unlimited that was conducted by 
the University of Virginia found that without deep additional 
deposition reductions, up to 35 percent of Virginia trout streams would 
become ``chronically acidic'' and would no longer support trout 
populations. The study further estimated that thousands of trout stream 
miles in the Southern Appalachians may be lost to acidification.
    Just a week ago the journal Nature, perhaps the most respected 
journal of its kind, published the broadest geographical study of acid 
rain to date. Written by 23 scientists, all of them top acid rain 
researchers, and taking samples from roughly 200 sites, the study again 
confirmed and elaborated on the disturbing findings of earlier works. 
How much more does Congress need to hear before it takes additional 
action?
    The disturbing and overwhelming evidence of the destruction of the 
streams, lakes and forests on public lands protected by our State 
constitution as forever wild, the contamination of fish in otherwise 
pure waters and the pollution of our coastal estuaries has raised grave 
concern in New York State. Our entire Congressional delegation co-
sponsors legislation introduced by Senators Moynihan and Schumer 
(S.172), and in the House by Congressmen Boehlert and Sweeney (HR 25) 
that seeks further emission reductions.
    In the past 2 years, the Office of the Attorney General of the 
State of New York has sought legal redress via other provisions of the 
Clean Air Act. Most recently, Attorney General Elliot Spitzer announced 
his intention in the coming weeks to bring suit against 17 utilities in 
five States to redress what he considers to be violations of the Clean 
Air Act that result in illegal emissions of acid rain precursors.
    In our State legislature, bills have been repeatedly introduced and 
passed (A.889) by the Chairman of the Environmental Conservation 
Committee (Richard Brodsky, D, Scarsdale) that would discourage the 
trade or sale of pollution allowances by New York utilities to upwind 
sources of acid rain. In July of this year, the State Senate 
unanimously passed a similar bill (S.4917) sponsored by his Senate 
counterpart (Carl Marcellino, R, Oyster Bay).
    The States that are most adversely affected by the damage from acid 
rain need to see clear movement by Congress to adjust the sulfur 
program and deal with the companion problem of the long-range transport 
of nitrogen oxides. The failure of the Senate and the House to act will 
result in more interstate litigation, and new efforts State-by-State to 
interfere with the free-market attributes that have led to the 
effectiveness of the program thus far. The better alternative is to 
fulfill the original intent of Congress to solve the acid rain problem 
by taking action soon.
    We respectfully suggest that the Senate take prompt action to:

      Build on the successful sulfur dioxide cap-and-trade 
program by creating a third phase of reductions further along the 
current time line. All of the advantages of the current program can be 
preserved in a predictable, flexible, and cost-effective manner while 
reducing sulfur-dioxide emissions by an additional 50 percent.
      Create a new cap-and-trade program for nitrogen-oxide 
emissions from utility smokestacks that mirrors the successful program 
already in place for sulfur. This cap and trade program should reduce 
nitrogen emissions from utilities nationwide by approximately 70 
percent of 1990 levels, resulting in a substantial and beneficial cut 
that is also reasonably achievable.

    To put this recommendation in perspective, we would like to address 
the subject of the ongoing battle over new air regulations issued last 
September by the USEPA, which at this time is the subject of 
litigation.
    USEPA has proposed a 22-State voluntary utility cap and trade 
program for nitrogen emissions as the preferred response for State 
compliance with its new ozone program.
    The EPA ozone proposal, which is only summer seasonal, will not 
address in any significant way, the acid rain problem. The acid rain 
dilemma is the total loading of nitrogen to sensitive areas. For high 
elevation areas the main concern stems from the buildup of nitrogen in 
the snow pack and the subsequent ``acidic pulse'' to aquatic systems in 
the spring of the year. Year-round controls will be necessary to 
address the nitrogen problem. Furthermore, only nationwide reductions 
will address the problems outside of the twenty-two State region 
covered by EPA's plan.
    Congress can level the competitive playing field for the utility 
industry by enacting national controls which will permit an expanded 
allowance trading market that will be more efficient and cost 
effective. The Congressional Budget Office has reached similar 
conclusions. In a report on the proposed nitrogen/ozone rules this 
summer. (Factors Affecting the Relative Success of EPA's NOx Cap-and-
trade Program, June 1998), the CBO identified similar benefits that 
would result if Congress provided additional statutory authority to 
EPA.
    Finally, we respectfully recommend:

      Congress should provide additional resources to the 
monitoring and research networks that, on a shoe-string budget, have 
provided the nation's research scientists with invaluable data on the 
actual state of affairs on the ground and in the air. The level of 
scientific certainty and confidence on acid rain has improved 
substantially since 1990, but existing research activities should be 
expanded.

    The need for additional action on acid rain is not just a New York 
perspective. In May of 1998, the Conference of New England Governors 
and Eastern Canadian Premiers issued a joint call for action that 
recommended additional reductions in utility emissions of 
SO2 and NOx. Earlier this year, the Adirondack Council was 
privileged to be joined by national, State and regional organizations 
representing hundreds of thousands of Americans concerned about the 
health of our forests, the productivity of our coastal bays, the 
improvement of our fisheries and the protection of our heritage, in a 
public letter to Congress asking that the acid rain program be 
revisited.
    Mr. Chairman, this nation committed itself to the task of ending 
the destruction of acid rain almost a decade ago. We think it is time 
to finish the job. Thank you again.
                                 ______
                                 
  Responses by Bernard Melewski to Additional Questions from Senator 
                                 Baucus
    Question 1. The Clean Air Act has been highly successful, but there 
is still a lot of work to be done. Do you believe that there will be 
any effects on the nation's health and the environment if we do not go 
beyond the current clean air policies established in the 1990 Clean Air 
Act Amendments?
    Response. Yes. There have been numerous government-produced 
analyses that project the trends in human and environmental health with 
full implementation of the 1990 CAAA used as a baseline that the 
Subcommittee has access to and has presumably examined. Most notable of 
these is the 1998 NAPAP Biennial Report to Congress, The 1995 USEPA 
Acid Deposition Standard Feasibility Study, and the exhaustive research 
conducted by USEPA during promulgation of its update of the National 
Ambient Air Quality Standards for ozone and particulates. Numerous 
studies by the States and academia have also examined what the likely 
impacts of failing to move beyond current clean air policies will be.
    According to these sources we may look forward to the following 
brief and incomplete list of consequences: A doubling of the number of 
acidified lakes in the Adirondacks, a large increase in the proportion 
of episodically acidified streams throughout the Appalachians, a 
reduction in the growth rate and health of forests in the east from 
soil nutrient depletion, an increase in the number of water bodies with 
mercury contaminated fish, continuing agricultural crop loss and damage 
from ozone exposure, continuing eutrophication of coastal estuaries, 
continuing degradation of historic buildings and monuments.
    We may experience acid rain related damage in parts of the country 
that were believed to be unaffected such as the Rocky Mountains and 
other western ranges, and areas currently affected may get worse due to 
long term exposure to acid deposition rates that are still too high for 
the environment to absorb.
    In regards to human health effects, the existing record of the 
Committee from its hearings on USEPA's proposed NAAQS revisions for 
ozone and fine particulates amply demonstrates the disturbing effects 
we can expect if we do not ``go beyond the current clean air policies'' 
as your question inquires. It is noteworthy, however, that the NAAQS 
revisions that USEPA ultimately promulgated have been blocked in the 
courts for reasons including the ruling that USEPA overextended its 
congressionally delegated powers and that.Congress delegated too much 
power to USEPA in the first place. I find it curious that Congress had 
the opportunity to block the NAAQS revisions during its review of 
USEPA's promulgation process, but did not do so, yet now Congress 
allows the courts to block the NAAQS revisions through its own 
inaction.

    Question 2. What are the primary mobile and stationary sources 
responsible for the impacts of acid rain and ozone pollution? What role 
does EPA's proposed sulfur standard for gasoline have in potential 
solutions?
    Response. Acid rain and ozone pollution are caused by two precursor 
pollutants; sulfur dioxide and oxides of nitrogen. Sulfur dioxide plays 
no role in the formation of ozone but is an important source of acid 
rain and fine particulate pollution. There are many anthropogenic 
sources of sulfur dioxide, the principle one being fossil fuel powered 
electric generating plants, which account for over two-thirds of US 
emissions. The 1990 Clean Air Act Amendments have resulted in a 
significant reduction in sulfur dioxide emissions from these plants, 
but they remain the largest source category. If Congress decides to 
make deeper cuts in emissions of sulfur dioxide, as we believe they 
should, the logical source to seek reductions Tom is still electric 
generators.
    The principal precursor for ozone, and a significant contributor to 
acid rain, are emissions of oxides of nitrogen, or NOx. About one-third 
of US anthropogenic NOx emissions come from the same electric 
generators that account for so much sulfur dioxide emissions. The other 
primary source of NOx, accounting for more than one-third of emissions, 
is the transportation sector. If Congress decides to make deeper cuts 
in emissions of NOx, as we believe they should, both electric 
generation and transportation sources will need to be addressed.
    EPA's proposed sulfur standard for gasoline is a necessary step in 
reducing NOx emissions from the transportation sector. Sulfur in 
gasoline fouls the catalytic converters installed on vehicles to reduce 
NOx emissions. It is important to note that in order to cut NOx 
emissions by the amount that acid rain and ozone science indicates is 
necessary to reduce environmental and health effects, no one action 
alone will suffice. Significant reductions are needed from electric 
generators and transportation sources beyond current clean air 
policies.
                               __________
   Statement of William F. Tyndall, Vice President of Environmental 
                     Services, Cinergy Corporation
    Good morning. Thank you for inviting me to testify before you on 
reauthorization of the Clean Air Act.
    My name is Bill Tyndall. Since August 1998, I have been Vice 
President of Environmental Services for Cinergy Corporation, an 
electric utility company based in Cincinnati, Ohio that provides power 
to 1.4 million electricity customers and 470,000 gas customers in Ohio, 
Indiana and Kentucky. Prior to joining Cinergy, I served Representative 
John Dingell and other Committee Democrats as minority counsel to the 
House Commerce Committee and advised them on air quality issues. Still 
earlier, I was a senior policy advisor in EPA's Office of Air and 
Radiation. Still prior to that, I served in EPA's Office of General 
Counsel, where I worked on new source review and other stationary 
source issues under the Clean Air Act.
    Thus, I am speaking to you today as someone who has spent nearly 10 
years addressing air policy issues from a variety of perspectives. I am 
also speaking to you on behalf of the Edison Electric Institute, an 
association that represents investor-owned electric utilities such as 
Cinergy. I will be addressing what I see as the successes and the 
problems of the Clean Air Act as amended by Congress in 1990.
    The Clean Air Act has proved effective at reducing air pollution in 
this country. Since the Act was adopted in 1970, emissions of the 
``criteria'' air pollutants--sulfur oxides such as sulfur dioxide 
(SO2), particulate matter, ozone, carbon monoxide, nitrogen 
dioxide and lead and their precursors (such as nitrogen oxides (NOx)) 
have fallen dramatically. While emissions of these pollutants from all 
industrial sectors have decreased, I will focus on those from power 
plants, a source category that is the focus of a large number of 
control programs under the Act. Consistent with the overall trend in 
emission reductions, emissions from power plants have fallen 
significantly since the Clean Air Act was adopted, and continue to 
decline as a result of the Title IV program for electric utilities 
adopted in 1990.
    According to the Environmental Protection Agency, utility emissions 
of NOx, which had been 6.7 million tons in 1990, declined to about 6.2 
million tons by the year 1997. By 2000, EPA projects that power plant 
NOx emissions will have declined by 2.1 million tons annually.
    Between 1970 and 1997, SO2 emissions resulting from fuel 
combustion by electric utilities declined by over 4 million tons a year 
(from a peak in 1980 of 17.5 million tons to 13.1 million tons in 
1997). Once the second phase of the Title IV program is fully 
implemented, we project further significant declines in SO2 
emissions, to less than 10 million tons annually.
    Electric utility particulate matter emissions have also declined 
substantially--by almost an order of magnitude (from 1.8 million tons 
in 1970 to 0.3 million tons in 1997).3 Virtually all coal-fired boilers 
in this country are now equipped with advanced particulate controls, 
including electrostatic precipitators (ESPs) and baghouses.
    These emission reductions are even more remarkable when one 
considers that they have occurred during a period of substantial 
economic growth. This economic growth triggered concomitant growth in 
electricity production and use. For example, between 1970 and 1996, 
electric utilities experienced a greater than 120 percent growth in 
sales, from 1392 billion kilowatt-hours to 3084 billion kilowatt-hours. 
Nevertheless, the utility industry implemented control programs that 
substantially reduced emissions from all of their facilities--both new 
and existing.
    But reducing emissions has not come cheaply. Information provided 
to the government by electric utilities on FERC Form No. 1 indicates 
that utilities and, as a result, their customers spent over $32 billion 
for air pollution control facilities between 1976 and 1996. Additional 
billions of dollars are being spent as the industry implements the 
second phase of the Title IV program. Utilities also bear the 
substantial, additional costs of operating and maintaining these 
pollution control facilities.
    As even EPA recognizes, the costs associated with Clean Air Act 
compliance have increased over time. EPA estimates that annual costs to 
electric utilities for Clean Air Act compliance, which were $1.5 
billion in 1985, had risen to $1.9 billion by 1990. The 1990 Clean Air 
Act Amendments increased these costs substantially. The SO2 
emission reduction program in Title IV alone has been estimated to 
increase the cost to electric utilities by up to $2.1 billion annually 
once it is fully implemented. There is every reason to believe that 
utility costs will continue to increase. Cinergy alone faces capital 
costs of up to $700 million for control of NOx emissions.
    While I am on the subject of costs, let me point to one program 
that has helped to keep these costs--although high--lower than they 
would otherwise have been. I am referring, of course, to the market-
based approach to reducing SO2 emissions that is found in 
Title IV of the Act. Title IV has been a great success, with 100 
percent compliance and substantial cost savings due to the flexibility 
of the program. Given the experience with Clean Air Act Title IV, I 
urge Congress to consider market-based approaches, as opposed to the 
traditional command-and-control approach to environmental regulation, 
whenever it considers reform or refinement of Clean Air Act emission 
reduction programs.
    However, to call the Title IV SO2 trading program a 
panacea is not correct either. Its success cannot be extrapolated to 
trading of NOx under EPA's SIP call, for example. Most of the 
SO2 trading cost savings have come about as a consequence of 
lower prices of western low-sulfur coal and its transportation. A 
similar low-cost fuels fix is not available for NOx. In addition, the 
SO2 program, unlike EPA's NOx SIP call, was designed in such 
a way as to maximize opportunities for trading. The SO2 
program was phased in over 10 years, while the NOx SIP call controls 
are due in less than 4 years. Furthermore, the SO2 program 
required only a 50 percent reduction while the NOx SIP call requires an 
85 percent reduction, which virtually mandates one type of emission 
control technology across most of the affected facilities. To maximize 
opportunities for NOx trading, the system should be modified to 
alleviate these problems.
    While the Clean Air Act has been successful in terms of producing 
improved air quality, I would now like to focus on some aspects of the 
Act that, in my opinion, have made producing that improvement more 
burdensome and costly than necessary. In this regard, the Act features 
many programs that are directed toward the same pollutants from the 
same sources. This can result in increased administrative burdens to 
States and the regulated community, reduced compliance flexibility, 
greater difficulty in responding to changing market forces, and less 
cost-effective control requirements.
    Let me illustrate my concern by referring to the many programs that 
are currently aimed at controlling NOx emissions from power plants. The 
statutory bases for controlling NOx emissions include the National 
Ambient Air Quality Standards (NAAQS) for ozone (of which NOx is a 
precursor) (CAA Sec.  109), programs required to provide for the 
``attainment and maintenance'' of the NAAQS (CAA Sec. Sec.  110, 172, & 
181-185), the Title IV existing source NOx reduction program (CAA Sec.  
407), the new source performance standard (``NSPS'') program for NOx 
emissions from new sources (CAA Sec. Sec.  111), the visibility 
improvement program (CAA Sec. Sec.  169A & 169B), the new source review 
(``NSR'') program (CAA Sec. Sec.  165, 172 & 173), and a number of 
other programs.
    For example, the Clean Air Act requires areas that do not attain 
the ozone NAAQS to implement ``reasonably available control 
technology'' for NOx emissions from major sources such as power plants 
(CAA Sec.  172(c)(1)), and to have an overall plan for making 
reasonable, further reductions in NOx emissions in order to attain and 
maintain the standard (CAA Sec.  110(a)(2)). The 1990 Clean Air Act 
Amendments added a number of specific NOx emission control requirements 
for power plants located in ozone nonattainment areas (CAA Sec.  182).
    In addition, new power plants are required to meet new source 
performance standards, and can be built only after being subjected to 
either ``prevention of significant deterioration'' (in attainment 
areas) (CAA Sec.  165) or nonattainment review (in nonattainment areas) 
(CAA Sec.  173). The same requirements apply to existing plants that 
are ``modified'' to create new capacity to emit air pollution beyond 
their original capacity. Title IV of the 1990 CAAA requires revision of 
the new source performance standards for NOx applicable to power plants 
(CAA Sec.  407(c)).
    Sections 169A and 169B of the Act require States to develop 
programs, pursuant to regulatory guidance issued by EPA, to address 
visibility concerns in the national parks. EPA just issued regulations 
in July of this year providing criteria for these State programs. These 
programs could address, among other things, NOx emissions from power 
plants.
    The 1990 Amendments added an important new program addressing NOx 
emissions from existing power plants--the Title IV program. These new 
provisions impose NOx emission limits on existing power plants covered 
by the Title IV acid rain provisions (CAA Sec.  407(b)). These limits 
have been imposed in two phases, the second of which must be 
implemented by the year 2000.
    EPA's implementation of these numerous, overlapping requirements 
that address NOx emissions from new and existing power plants has added 
to the complexity and cost of industry compliance efforts. For example, 
in 1997, EPA used the NAAQS provisions of the Act to promulgate a new 
ambient standard for ozone that was more stringent than the existing 
standard--the standard that serves as the basis for the specific NOx 
control programs Congress wrote into Subpart 2 of Title I of the Act in 
1990. EPA has indicated that the new ozone NAAQS would be implemented 
largely through NOx controls. But while Congress specified a detailed 
program for reducing ozone levels in Subpart 2 of the Act--a program 
that addresses NOx as well as VOC (``volatile organic compound'') 
emissions--the Agency indicated that it would not rely on that program 
when implementing the new NAAQS. The United States Court of Appeals for 
the District of Columbia Circuit understood the problems these 
inconsistencies posed and held that any new standard could not be 
implemented other than through the Congressional ozone reduction 
program.
    At the same time that EPA has revised the ozone NAAQS, EPA has 
sought to use its Clean Air Act authority to review the adequacy of 
State Implementation Plans to develop a program for further NOx 
reductions for power plants in 22 States throughout the Eastern United 
States. This program is referred to as EPA's NOx SIP call rule. In many 
cases, the power plants affected by these NOx reduction requirements 
are far removed from the ozone nonattainment areas.
    NOx reduction requirements could also be imposed on specific power 
plants in response to petitions filed by Northeastern States under 
Sec.  126 of the Act. EPA has issued a rule which includes findings 
that would result in the automatic grant of these Sec.  126 petitions, 
thereby triggering a 3-year compliance schedule, if States do not 
respond to EPA's NOx SIP call rule by November of this year. EPA has, 
however, temporarily stayed this rule while it undertakes additional 
rulemaking to ``de-link'' the Sec.  126 rule from the SIP call rule, 
thereby abandoning the Agency's earlier conclusion that the Sec.  126 
program should proceed only after States had an opportunity to consider 
additional control programs pursuant to the SIP call rule.
    The utility industry is therefore confronted with numerous programs 
that address the same pollutant. Each program has potentially different 
implementation schedules. Each program raises different questions for a 
company's compliance planning. As you can imagine, this mix of programs 
and implementation schedules makes compliance planning exceedingly 
difficult and compliance itself unnecessarily expensive.
    One key problem is that the differing programs may demand different 
technologies. A utility that invested in low NOx burners to meet its 
Title IV NOx requirements, for example, may also have to add Selective 
Catalytic Reduction (SCR) or Selective Non-catalytic Reduction 
(``SNCR''), or even switch to an alternative fuel such as natural gas, 
depending upon the schedule for and stringency of future requirements. 
The choice of technology is influenced not only by the stringency of 
and schedule for future requirements, but also by the nature of the 
implementation scheme. For example, will trading or banking of NOx 
emission credits be allowed, and under what conditions? These changing 
and uncertain requirements are both frustrating and costly for 
regulated industry and States.
    Furthermore, because one program is not allowed to work before 
another is implemented, it is unclear that all of these overlapping 
programs are necessary from an environmental standpoint. For example, 
the detailed Congressional ozone control program contained in Subpart 2 
of Title I reduced the number of ozone nonattainment areas by 62 
percent (from 100 to 38) between 1991 and 1998.1 But EPA did not permit 
that program to come to fruition before adopting a new ozone NAAQS that 
would be implemented through a different program--under Subpart 1 
instead of Subpart 2 of the Act. It is questionable that adoption of 
this new program will speed or enhance public health protection, but it 
certainly complicates planning for sources possibly subject to two 
NAAQS implementation programs.
    Furthermore, while the previous discussion has addressed those 
portions of the Clean Air Act that concern power plant NOx emissions, 
the Clean Air Act contains numerous other programs addressing electric 
utilities that a company must consider in formulating its overall 
compliance strategy. I am providing with this testimony a chart that 
illustrates the myriad of new requirements that electric utilities face 
under the Clean Air Act regarding their emissions of SO2 and 
NOx over the next decade. These include monitoring, reporting and 
control requirements for sulfur dioxide (SO2) emissions; 
additional SO2 emission reduction requirements under a 
possible short-term SO2 ambient standard and a revised 
PM2.5 standard; possible SO2 and NOx limitations 
as part of regional haze programs; and revised new source review 
requirements. Other regulatory programs that electric utilities may 
face include possible regulation of mercury emissions and possible 
future regulatory requirements targeting CO2 emissions.
    A company must also consider the possibility that legislation to 
restructure the electric utility industry could include new air quality 
programs. Because the system of air quality regulation is already so 
complex and burdened by a large number of programs addressing both new 
and existing power plants, I simply urge that restructuring legislation 
is not the place for more air quality legislation.
    In sum, a company must evaluate its compliance plans in light of 
all of these programs--a daunting task given the continued regulatory 
uncertainty regarding many of them. The result could be commitments to 
expensive control technologies today for certain substances, which 
would be rendered useless during the next decade if new regulatory 
requirements dictate another compliance strategy, such as a switch to 
natural gas.
    Finally, all of these difficulties are compounded by EPA's changing 
interpretations of key provisions of the Clean Air Act. For example, 
all of the regulatory programs discussed previously are being developed 
or implemented at the same time that EPA has proposed to change the 
Clean Air Act rule defining when an existing source is ``modified'' to 
such an extent that it must meet new source requirements, including 
NSPS and preconstruction permitting requirements under the PSD and 
nonattainment programs.
    The Clean Air Act modification rule is perhaps the most complex and 
least understood of the Clean Air Act programs. EPA and the States have 
issued volumes of dense and sometimes conflicting guidance regarding 
the program. Indeed, EPA has recognized the confusing, cumbersome and 
byzantine nature of the NSR modification rules and is working with 
various stakeholders including industry and States to develop an 
appropriate fix.
    This effort to develop a fix to the modification rule on which all 
can agree is critical, because EPA's recent efforts to reform this 
program have created tremendous confusion about the nature of repairs 
and activities that can be allowed at existing plants. Let me explain. 
Historically, EPA has stated Congress ``did not intend to make every 
activity at a source subject to new source requirements,'' and that the 
Clean Air Act modification rule ``in no way intends to discourage 
physical or operational changes that increase efficiency or reliability 
or lower operating costs, or improve other operational characteristics 
of the unit.'' By contrast, EPA explained in its July 1998 proposed 
revisions to the modification rule that the proposed rule changes would 
target activities undertaken ``to increase reliability, lower operating 
costs, or improve operational characteristics of the unit,'' even if 
doing so would not result in any increase in the unit's emission rate.
    This proposed change in the modification rule would strike at the 
heart of efforts to maintain the competitiveness of American industry 
in an international marketplace. For the utility industry, the proposed 
new approach to the modification rule would hinder the industry's 
efforts to optimize the reliability, efficiency and safety of its 
generating units at a time of declining electricity reserve margins. By 
discouraging such efficiency gains it is contrary to the 
Administration's goals of reducing greenhouse gases. Before proceeding 
with this rulemaking, therefore, it is critical that EPA take time to 
pursue the discussions with States, industry, and other stakeholders 
and that EPA take their concerns into account. EPA must adopt a 
modification rule that is clear and understandable, and that avoids 
unnecessary administrative and regulatory costs.
    The electric utility industry recognizes that it has a 
responsibility to produce and supply the power this nation needs in an 
environmentally responsible manner. Its voluntary establishment and 
participation in the Climate Challenge program in partnership with the 
Department of Energy is evidence of its commitment to meeting that 
responsibility. This program will lead to 170 million tons of 
greenhouse gas reductions in the year 2000.
    There are a variety of ways to achieve emissions reduction goals 
for this industry, while continuing to ensure a reliable and affordable 
delivery of electricity. EEI is working to develop new innovative 
approaches to dealing with these challenges. While I cannot speak for 
the entire industry, Cinergy strongly believes that Congress needs to 
replace the myriad of emission control programs aimed at utilities with 
a comprehensive approach that establishes a single set of reasonable 
reduction requirements with adequate lead times and market-based 
implementation mechanisms. This can be done in a manner that is 
consistent with the air quality and public health goals established in 
the Clean Air Act and that is more efficient, economic and provides 
more regulatory certainty than the existing piecemeal, uncoordinated 
approach that I have described today. And, along with such innovative 
solutions, we also need a significant increase in public/private 
partnerships for research and development to identify the next 
generation of technology alternatives, and create incentives that will 
move us to even cleaner forms of electric generation in the future. But 
this will put this issue squarely before this Committee since it cannot 
be done without Congressional action.
    With fair and clear environmental goals, appropriate timeframes, 
and flexible implementation, utilities can best determine a future 
course for their companies, be it pollution control installation or 
fuel switching or a combination that will give us the environmental 
solution we are striving to attain.

                               __________
       Statement of Mike Benoit, Cement Kiln Recycling Coalition
Introduction
    Chairman Inhofe, Senator Graham and Members of the Subcommittee, 
good morning. Thank you for inviting me to testify at today's hearing 
on reauthorization of the Clean Air Act. My name is Mike Benoit. I am 
Executive Director of the Cement Kiln Recycling Coalition (CKRC), a 
trade association representing cement producers that recover energy 
from hazardous wastes along with companies that provide equipment and 
services to cement manufacturers. As I'm sure you know, cement is the 
key ingredient in concrete which is an essential building material that 
is integral to our nation's infrastructure. In the United States, there 
are 118 cement plants located in 37 States. 52 of those plants use 
energy-bearing wastes as alternative fuels to fire their high-
temperature cement kilns. Of those 52, 17 cement plants in 10 States 
recover energy from over 1,000,000 tons per year of regulated 
industrial waste materials in their high-temperature kilns, resulting 
in energy savings equivalent to roughly 22 trillion Btu per year, or 
the equivalent of more than 6 billion kilowatt-hours.
    Today, this Subcommittee undertakes the difficult task of preparing 
for the reauthorization of the Clean Air Act. The statute is one of the 
most complex in U.S. environmental law and surely would benefit from 
some improvements. In that regard, there are some general principles 
that we hope will guide the Subcommittee as it proceeds. For example, 
regulatory action under the Act should:

    adequately consider costs and risk reduction benefits; be derived 
from sound scientific principles that advance technological 
development;
    be based upon consistent application and defensible interpretation 
of the law; be implemented and enforced in a manner designed to ensure 
predictability, fairness, and compliance; and
    accommodate and encourage energy recovery technologies that reduce 
air pollution.

    Our industry is subject to extensive regulation pursuant to the 
Clean Air Act. CKRC's member companies have very recently become 
subject to EPA's National Emission Standards for Hazardous Air 
Pollutants (NESHAPS): Final Rule for Hazardous Air Pollutants for 
Hazardous Waste Combustors (HWCs), or as it is called, the HWC Maximum 
Achievable Control Technology (MACT) rule, which was promulgated on 
September 30, 1999. (64 Fed. Reg., 52827, September 30, 1999) Our 6 
years of experience with the development of the HWC MACTrule is the 
topic of my testimony today and is presented here as a case study that 
we hope can shed some light upon possible improvements to the Act, and 
to Section 112 in particular.
    EPA did many strange and unprecedented things in the HWC rule. 
Unfortunately, many of them were aimed at achieving regulatory outcomes 
that could not be obtained by following the letter and spirit of 
Section 112 of the Clean Air Act. EPA focused on and pursued objectives 
that are plainly not authorized by the Clean Air Act as the Agency 
inappropriately invoked its RCRA authority or simply acted arbitrarily 
to go far beyond the provisions of Section 112 and its own internal 
precedents in previous CAA rulemakings. For reasons that will become 
clear, EPA became preoccupied with the competitive structure of the 
market for hazardous waste combustion and relied upon numerous 
unauthorized policy objectives which, ultimately, overwhelmed the 
regulatory process and led to the extraordinary decisions found in the 
final HWC rule.
    Before proceeding further, however, we would particularly like to 
thank you, Mr. Chairman, along with Senators Hutchison, Graham, and 
Wyden for taking a particular interest in the oversight of the HWC MACT 
rule.
General Background
    It is important to understand the nature of energy recovery in 
cement kilns and the environmental benefits that accrue. Under its RCRA 
Land Disposal Restriction rules EPA has mandated that certain 
categories of wastes must be burned--either in industrial furnaces 
(such as cement kilns), industrial boilers, or incinerators. EPA has 
also ruled that burning wastes in these types of combustion units is 
Best Demonstrated Available Technology (BDAT) for reducing or 
eliminating the hazards associated with those wastes. Cement kilns that 
recover energy from hazardous waste use these regulated materials as 
fuel--a one-for-one substitute for coal. More simply, kilns that 
recover energy from wastes are taking materials that EPA has said must 
be burned and converting them to productive use as a fuel in the cement 
manufacturing process. This technology yields many benefits:
      The nation's consumption of fossil fuel is reduced since 
less coal is burned; thus we're conserving our energy resources.
      Air pollution is significantly decreased because cement 
kilos replace fossil fuel with waste materials that EPA says must be 
burned. If cement kilns didn't or couldn't recover energy from these 
wastes, they would simply have to be burned elsewhere and the kilns 
would burn coal instead.
      Recovering energy from wastes in cement kilns reduces the 
amount of total combustion. That lowers emissions of carbon dioxide 
(C02) and thus lowers emissions of greenhouse gases. Because of their 
chemical make-up, the waste materials burned in cement kilns also 
generate far lower emissions of sulfur oxides and nitrogen oxides (SOx 
and NOx).
    The waste materials are put to productive use manufacturing 
Portland cement, the key ingredient in concrete, which is a critical 
construction material and absolutely essential to building and 
repairing our nation's infrastructure.
    Air pollutants from cement kilns that recover energy from hazardous 
waste have been fully regulated since 1991. The members of CKRC 
recognize and accept that managing hazardous waste brings with it an 
obligation to society and that the public is well-served by our 
industry's excellent track record of compliance with comprehensive 
regulations designed to protect health and the environment.
    Waste-burning cement kilns are subject to USEPA's 1991 Boiler and 
Industrial Furnace (BIF) Rule pursuant to the Resource Conservation and 
Recovery Act (RCRA). The BIF rules govern all aspects of processing, 
transporting, storing, and burning hazardous waste-derived fuels, and 
include stringent standards governing emissions of hazardous air 
pollutants. Upon promulgation in 1991, EPA lauded the BIF rule as fully 
protective of human health and the environment. In early 1993, EPA 
vigorously argued before the D.C. Circuit Court of Appeals that the BIF 
rules are fully protective. Since that time, there has been a massive 
amount testing of cement kiln emissions and extensive analysis of the 
risks associated with those emissions. Our industry has spent over $180 
million complying with the BIF rule. We also have invested over $25 
million on scientific, EPA-approved emissions testing and conducted at 
least 10 comprehensive risk assessments costing over $9 million. In 
addition, EPA and several State environmental agencies have conducted 
their own risk assessments. In every case, the emissions from cement 
kilns (including all those substances regulated as hazardous air 
pollutants (HAPs) by the HWC MACT rule) have been shown to be in 
compliance with the BIF rules and to pose no unacceptable risk to the 
surrounding communities. USEPA has possessed all of this data and 
information for several years.
    Just 2 weeks ago, on September 30, 1999, our industry became 
subject to yet more EPA regulations when the Agency published the 
Hazardous Waste Combustor (HWC) Maximum Achievable Control Technology 
(MACT) Rule pursuant to Section 112 of the Clean Air Act (CAA). CKRC 
was deeply involved in monitoring this 6-year rulemaking and we 
provided extensive data and other technical information to EPA to 
assist the Agency in its regulatory development process.
History of HWC MACT Rulemaking
    As you are aware, before EPA issued any MACT rules, the Agency 
prepared a response to the Congressional directives of Section 1 1 2(e) 
of the Clean Air Act by developing its Source Category Ranking System 
(SCRS) to evaluate the comparative risks posed by facilities. (58 Fed. 
Reg., 63941, December 3, 1993) Congress had instructed that ``The 
Administrator should regulate first those categories or subcategories 
that he determines, based on the listed factors, present the greatest 
threat to public health.'' (H.R. Rep. No. 101-490, at 330 (1990) In its 
December 1993 schedule for promulgation of MACT rules based on its 
SCRS, EPA deferred regulating HWCs until November 15, 1997 or later. 
(58 Fed. Reg. at 63952-53) In contrast, EPA identified 45 other source 
categories as higher-risk than HWCs and scheduled them for MACT 
standard issuance by 1994.
    EPA has thus concluded that HWCs, including cement kilns, are 
relatively low-risk sources of HAP emissions. That's not surprising 
since, as explained above, HAP emissions from cement kilns were already 
regulated under fully protective comprehensive RCRA standards. Despite 
this fact, the recently promulgated MACT standards for HWCs are 
unnecessarily stringent, very complex, and overly burdensome. The HWC 
MACT rule is about five times longer than other MACT rules. And the HWC 
MACT rule holds the record for the highest cost EPA has ever justified 
to meet a MACT standard. The semi-volatile metals emission standard for 
cement kilns has a cost effectiveness of $500,000 per metric ton of 
pollutants removed--almost 60 times higher than the average acceptable 
cost effectiveness in all previous MACT rules!
    These extreme outcomes beg the question ``Why did EPA do this?'' 
It's a long story that will be fleshed-out below; but the short answer 
is that the Agency has been fixated on the competitive features of the 
thermal treatment market. In fact, in statements to the press in 1996, 
the Administrator explained that the HWC MACT rule would be designed to 
``level the playing field for hazardous waste incinerators.'' She also 
vowed to stop ``allowing the competing cement kilns to undercut the 
commercial incinerators'' in pricing. (See attached Appendix H. p.34 of 
CKRC's comments on the proposed HWC MACT rule, August 19, 1996.)
    There obviously exists no statutory authority of any kind for EPA 
to interfere in waste management markets. And Section 112 of the CAA 
clearly instructs EPA to accommodate the technological differences 
among various source categories in setting MACT standards, even to the 
point of subcategorizing within a single source category. Nonetheless, 
in the HWC MACT rule, EPA was determined to carry out the 
Administrator's goals even if it had to override the clear directives 
of Section 112. The best example of this is that, after EPA established 
an SVM MACT floor level for incinerators of 240 micrograms/dscm, the 
Agency went to extreme measures to ``justify'' setting an identical, 
but relatively much more stringent 240 microgram/dscm SVM beyond the 
MACT floor standard for cement kilns. Voila! The HWC rule now contains 
uniform numerical standards for very different technologies and EPA has 
created the so-called ``level playing field'' the Administrator called 
for in 1996. As testament to the 'success' of the Agency's 'creation,' 
in a July 1999 briefing for Senate staff, EPA noted that the HWC MACT 
rule would leave cement kilns ``. . .worse off due to the decline in 
market share and revenues, while commercial incinerators are projected 
to be better off due to the increase in prices, market share, and 
overall revenues.'' (See attached Overview of Hazardous Waste Combustor 
NESHAP Rule for Congressional Committees, July 1999) In the process, 
the intent of Congress was undermined.
    As you know, Congress, including members of this Subcommittee, 
became aware in early 1998 of some of EPA's novel interpretations of 
Section 112 in the HWC rule and began conducting aggressive oversight 
over EPA's rulemaking process. Members of this Subcommittee were 
particularly concerned about the fate of energy recovery in cement 
kilns and the possibility that ``if the [HWC MACT] rule is not 
sufficiently flexible, it may discourage this form of recycling.'' 
These Senators also asked EPA ``to demonstrate that the proposed 
[cement kiln semi-volatile metal] MACT standard actually reduces risk 
over and above a MACT standard set at the floor.'' (See attached April 
15, 1999 letter to USEPA from Senators Graham and Hutchison.) In all, 
members of the Senate EPW Committee sent four detailed letters to EPA 
over an eleven-month period and, in too many instances, the Agency 
either declined to respond or failed to respond substantively to the 
oversight inquiries (See attached letters from U.S. Senate to USEPA and 
EPA responses).
    The many major flaws in the HWC MACT rule may prove instructive as 
this Subcommittee considers reauthorization of the CAA. CKRC believes 
its experience with the HWC MACT rule is unique and we hope this 
testimony may prove helpful in identifying provisions of the statute 
(particularly Section 1 12) that should be considered for amendment.
Specific Issues
    The HWC MACT rule suffers from several defects that have their 
roots in three main areas: risk reduction/economic impact, scientific/
technological basis, and jurisdiction. Also, the rule's implementation 
requirements are unduly complex and burdensome. Finally, the rule has 
no provisions designed to accommodate, encourage, or even recognize the 
environmentally beneficial recovery of energy from waste materials in 
existing industrial processes. In fact, it actually penalizes energy 
recovery technologies and seems designed to reduce the capacity of 
cement kilns to recover energy from hazardous wastes.
            A. Risk Reduction/Economic Impact
    Section 112 of the CAA authorizes EPA to set emissions standards 
that ``shall not be less stringent, and may be more stringent than. . . 
the average emission limitation achieved by the best performing 12 
percent of existing sources. . . '' Such ``more stringent'' standards 
are called 'Beyond the MACT Floor Standards' or, simply 'Beyond the 
Floor' (BTF) standards. However, unlike MACT floor standards, BTF 
standards are subject to certain restrictions provided in Section 
112(d)(2) wherein the Administrator must take into consideration ``the 
cost of achieving such emission reduction, and any non-air quality 
health and environmental impacts and energy requirements. . . '' In 
establishing MACT floor standards, Congress did not obligate EPA to 
consider costs and other factors. However, EPA is obligated to justify 
additional stringency beyond the MACT floor level. EPA has interpreted 
the provisions of Section 1 12 noted above as requiring that the Agency 
make a finding that a BTF standard is ``cost effective''. In past MACT 
rulemakings, EPA has been very sparing in promulgating beyond-the-floor 
standards. In the HWC MACT rule, on the other hand, EPA has published 
several BTF standards, some with cost effectiveness levels that exceed 
what has previously passed as cost effective by a factor of almost 60!
    Because it is a clear example of what we believe is an abuse of the 
intent of the CAA, CKRC has been particularly concerned about the BTF 
standard EPA set for emissions of semi-volatile metals (SVM) from 
cement kilns. (In hazardous waste combustors, due to the nature of the 
waste materials burned, a majority of SVM emissions are lead and the 
balance is cadmium.) In the final rule, EPA set a MACT floor SVM 
standard of 650 micrograms/dry standard cubic meter (dscm) for cement 
kilns. but decided to promulgate a much more stringent BTF standard of 
240 micrograms/dscm. EPA's decision to set a BTF SVM standard for 
cement kilns was the subject of significant oversight by members of the 
Senate EPW committee. (See attached letters.) In the final analysis, 
EPA was completely unmoved by this committee's oversight and its 
frequently expressed concerns about the flawed analytical process, the 
lack of justification, and the possible negative consequences on energy 
recovery.
    As noted above, in its past rulemakings, EPA has justified the 
establishment of BTF standards by finding them to be cost effective. 
Logic dictates that, implicit in such a finding, there should be some 
measurable environmental or public health benefit gained relative to 
the incremental costs of complying with a significantly more stringent 
standard. Historically, EPA has calculated the cost effectiveness of 
BTF standards in terms of dollars per ton of pollutant removed. In its 
previous decisions to promulgate BTF MACT standards, EPA's Of flee of 
Air and Radiation (OAR) generally has found acceptable cost 
effectiveness levels in the range of roughly $5,000-$14,000 per 
megagram (metric ton) of pollutant removed, with an average level of 
about $8,500 per metric ton. (See attached report, A Review of Economic 
Factors to use in PSD BACT Economic Analysis, Iowa Department of 
Natural Resources, p. 11, July 1998.) Cost effectiveness figures above 
that level generally have been found by OAR to be unacceptable. But the 
HWC MACT rule was not written by OAR, it was written by the Office of 
Solid Waste and Emergency Response (OSWER). For the BTF SVM standard 
for cement kilns in the HWC MACT rule, OSWER found acceptable a cost 
effectiveness of $500,000 per metric ton! That's almost 60 times more 
expensive than the average acceptable cost effectiveness levels in 
previous MACT rules!
    In the final rule, EPA acknowledges ``the relatively poor cost 
effectiveness of this standard'' (64 Fed. Reg., 52882, September 30, 
1999). The folly of EPA's acceptance of such an exorbitant economic 
impact on the cement industry becomes even more egregious in light of 
the complete lack of risk reduction gained by setting the more 
stringent BTF SVM standard. Although EPA frequently told stakeholders 
in this rulemaking that its decisions were being driven by concerns 
about children's health, in a June 7, 1999 letter to Senator Hutchison, 
EPA conceded that ``we do not project a reduction in the numbers of 
children with blood lead levels the [sic] exceed the Centers of Disease 
Control and Prevention intervention level.'' (See attached letter from 
USEPA to Senator Hutchison)
    Nonetheless, in the final HWC MACT rule EPA continues to claim that 
the beyond-the-floor SVM standard for cement kilns ``supports our 
Children's Health Initiative.'' (64 Fed. Reg., 52882, September 30, 
1999) In the final rule, EPA states that its ``characterization of 
risks from lead focuses on the reductions in blood levels themselves 
and EPA's goal of reducing blood lead levels in children to below 10 
micrograms per deciliter.'' (64 Fed. Reg., 53003, September 30, 1999) 
But, later, EPA describes the results of its analysis of the ``excess 
incidence of elevated blood lead'' attributable to HWCs and observes 
that ``a small reduction (0.4 cases per year) is attributable to cement 
kilns.'' (64 Fed. Reg., 53008, September 30, 1999)
    So, while EPA claims to have made its decision to go beyond-the-
floor to improve the health of children, the Agency ultimately reveals 
that the benefit to children's health produced by the cement kiln BTF 
SVM standard is a decrease in the incidence of elevated blood lead 
levels of 0.4 cases per year. That's 0.4 cases out of the entire US 
population of over 250 million people! Surely all of us who support 
investments in the health needs of children should be dismayed by EPA's 
investment of 6 years in a regulation that will cost Americans millions 
of dollars to produce such a paltry result. In its comments on the HWC 
MACT rule, CKRC submitted a report to EPA showing that the literature 
contains abundant EPA and Centers for Disease Control and Prevention 
data that proves, by a wide margin, the most significant source of 
elevated blood levels in children is caused by exposure to lead-based 
paints in older housing. The dollars of additional cost that EPA has 
imposed on our industry with its BTF SVM standard would yield much 
greater public health benefits if applied to remediation of those lead-
based coatings.
    Combining OSWER's outrageous cost effectiveness findings with the 
results of its risk analysis reveals that the 240 microgram/dscm SVM 
standard for cement kilns is the single most expensive beyond-the-floor 
MACT standard ever promulgated by EPA. And the societal benefits gained 
are an incredibly miniscule and practically unmeasurable decrease in 
the incidence of elevated blood lead levels. By contrast, it's 
interesting to note that in 1995 OAR published a final MACT rule for 
secondary lead smelters. In that rule, OAR promulgated a MACT floor 
emission standard for lead of 2000 micrograms/dscm, almost 10 times 
higher than the cement kiln SVM standard. And, because secondary lead 
smelters also are subject to regulation under RCRA, EPA examined the 
risk factors and specifically concluded in the secondary lead smelter 
rule that the standard of 2000 micrograms/dscm was fully protective of 
human health and the environment and, therefore, the Agency's RCRA 
obligations were satisfied.
    These are examples of the inconsistent and extreme results that can 
ensue when EPA is allowed to arbitrarily mix the authorities of 
different statutes and employ unauthorized policies to arrive at 
decisions that contravene Congressional intent. Clearly, the abuses 
found in the HWC MACT rule demonstrate that any reauthorization of the 
Clean Air Act ought to include a significant revision of Section 1 12, 
especially as it relates to beyond-the-floor MACT standards. Absent 
specific guidance from Congress regarding acceptable economic impacts 
and risk reduction targets, and without tight limitations on the 
Agency's rulemaking procedures, the spirit and intent of the Clean Air 
Act can and will be undermined.
            B. Science and Technology
    As cited above, Section 1 12 of the Clean Air Act specifies that 
emissions standards for existing sources ``. . . shall not be less 
stringent, and may be more stringent than the average emission 
limitation achieved by the best performing 12 percent of existing 
sources. . . '' Emissions standards that are not ``less stringent'' are 
generally referred to as ``MACT Floor'' standards. ``More stringent'' 
standards are called ``Beyond-the-Floor'' standards. In accordance with 
the statute, both types of emissions standards are technology-based 
standards. This is as opposed to risk-based standards that EPA is 
authorized to promulgate under other statutes, such as RCRA.
    In its previous MACT rulemakings for industrial source categories, 
EPA has developed MACT floor standards by assessing the performance of 
the various control technologies employed to control emissions of 
hazardous air pollutants (HAPs). Typically, this involves assembling an 
inventory of the technologies in existence followed by analysis of a 
body of data that describes the performance of those technologies. As 
specified by the CAA, EPA is supposed to use the analysis to determine 
``the average emission limitation achieved by the best performing 12 
percent of existing sources.'' For example, EPA evaluates the 
performance of a control technology designed to capture emissions of a 
particular HAP by analyzing data that describes the emissions capture 
rate of specific air pollution control devices (APCDs) or other 
technologies. By following what is supposed to be a very prescriptive 
process, EPA then determines which APCDs represent the ``best 
performing 12 percent'' and establishes the MACT floor emissions 
standard at that level of performance. Clearly, an important part of 
Congress's intent in the CAA and in Section 1 12, is to create pressure 
on industry to upgrade its air pollution control systems and processes 
and, thereby, advance the scientific development of more effective 
technologies to reduce air pollution. Stated simply, Congress intended 
the CAA to be a science-based, technology-forcing statute.
    In the HWC MACT rule, EPA claims to have followed the prescribed 
procedure for establishing MACT floor levels for the various HAPs at 
issue in this rulemaking (dioxins/furans, mercury, metals, chlorine and 
hydrogen chloride). But, in many cases, OSWER went beyond the 
established procedure previously developed and implemented by OAR and 
employed unprecedented and highly questionable techniques to set the 
MACT floor levels for HWCs. For example, to set emissions standards for 
metals, EPA identified what it refers to as ``feedrate reduction'' of 
metals as a 'control technology' that is uniquely available to 
hazardous waste combustors. The Agency evaluated this ``control 
technology'' by lumping all units in each subcategory together, hand-
picking the individual combustion units that just happened to have the 
lowest metals feedrates, and then anointing them as ``best 
performers.'' Basically, EPA 'discovered' that the way to control 
emissions from HWCs is to cause them to reduce the amount of waste they 
can burn--even though HWC's that burn hazardous waste are playing a 
critical role in managing that waste! That type of 'emissions control' 
doesn't come close to advancing the scientific development of more 
effective pollution control technologies and has nothing whatsoever to 
do with the ``best performing'' technologies.
    Some additional context is needed to fully appreciate the 
implication of this decision by EPA. In several of its RCRA rules, EPA 
has acknowledged that, other than combustion, there are no known 
technologies to separate metals from certain combustible hazardous 
waste streams. In fact, EPA mandates that these types of wastes must be 
combusted in regulated HWCs. One way or another, these materials must 
be burned in a regulated unit such as an incinerator, a cement kiln, or 
a boiler. (Recall that, in its RCRA rules, EPA has specified combustion 
as the Best Demonstrated Availability Technology for these waste 
streams, in full recognition of the fact that they usually contain 
metals.)
    So this ``control technology'' (i.e., feedrate reduction) contrived 
by OSWER amounts to little more than a device for rewarding those 
facilities that burn less hazardous waste and penalizing those that 
(for whatever reason) burn more waste. Thus, the practical effect of 
implementing feedrate reduction as a control technology is to force 
facilities to burn less waste--in the case of cement kilns, to reduce 
their energy recovery capacity and burn more coal. If fully extended to 
a manufacturing process such as an oil refinery, this type of logic 
implies that the ``best performing'' oil refinery would be the one that 
feeds no crude oil to the unit. EPA's approach would mean that the best 
performing refineries are the ones out of business. There simply is no 
legitimate rationale in the Clean Air Act for this type of approach to 
setting MACT standards and, in fact, the approach used by OSWER in the 
HWC MACT rule is wholly without precedent in other CAA MACT 
rulemakings.
    The real travesty here is that, by defining feedrate reduction as a 
technology, EPA has shredded Congressional intent and made a mockery of 
bona fide air pollution control technologies. In the HWC rule, the 
Agency has ignored the intent of the CAA to promote scientific 
development of air pollution control technologies by declaring that a 
legitimate and proper solution to the problem of controlling air 
emissions is as simple as just feeding less material into a process. 
Because if you don't put it in, it won't come out. What a discovery! 
What a great leap forward! Played out to its full extent, EPA's logic 
in the HWC MACT rule would mean that shutting down industry could best 
solve America's air pollution problems.
    In the HWC MACT rule, EPA cites the provisions of Section 112 
(d)(2)(A) that allow ``substitution of materials or other 
modifications'' as its authority for using feedrate reduction as a 
control technology. EPA argues that cement kilns can comply with the 
more stringent BTF SVM standard simply by using less hazardous waste 
for energy recovery and ``substituting'' it with coal--thus increasing 
both the total amount of combustion and overall emissions of air 
pollutants. OSWER claims this is consistent with the spirit and intent 
of the CAA. But the Agency never explains why feedrate reduction has 
never been used by OAR in any other CAA rule.
    CKRC would like to suggest that this Subcommittee and, eventually, 
Congress take steps in the reauthorization of the CAA to require that 
EPA implement the Act using only legitimate scientific rationales. EPA 
should be prevented from conjuring-up unprecedented techniques to 
justify emissions standards that are more stringent than could ever be 
derived by conventional data analysis as applied to bona fide air 
pollution control technologies. In particular, Congress should ensure 
that reducing inputs to processes can never be claimed as a ``control 
technology,'' especially in the case of energy recovery applications 
that result in a decrease in air pollution. Finally, Congress should 
require that EPA not attempt to abuse its CAA authority to try to 
manipulate competitive markets.
                            c. jurisdiction
    The EPA office traditionally charged with implementing the CAA is 
the Office of Air and Radiation (OAR). Aside from the Phase I and Phase 
II MACT rules affecting combustion of hazardous waste, all other MACT 
rulemakings promulgated by EPA (including several relating to other 
types of waste combustion) have been or are being developed by OAR. The 
HWC MACT rule (in its various phases) is the only one that has been or 
will be developed by OSWER.
    As we have seen, this jurisdictional anomaly proved instrumental in 
creating a mechanism for EPA to circumvent CAA authority and the intent 
of Congress and, by invoking supposed ``RCRA concerns,'' enabled the 
Agency to promote its unauthorized policy objectives relating to the 
hazardous waste combustion market. CKRC is convinced that the HWC MACT 
rule would not suffer from its unusual defects had the regulatory 
development process been in control of the more experienced Office of 
Air and Radiation. It has been common knowledge that this rulemaking 
produced a huge donnybrook between OAR and OSWER and that the arguments 
were, in part, related to OSWER's disregard for precedent established 
by OAR in implementing the CAA. Historically, in its development of 
other MACT rules, OAR has at the very least exercised some restraint in 
its interpretation of the statute and achieved a degree of regulatory 
consistency across its CAA rulemakings. Surely we know of no cases 
where OAR attempted to use the CAA to affect the competitive structure 
of markets. Unfortunately, the HWC MACT rule became a vehicle for OSWER 
to inject the Agency's biases into the thermal treatment market and, 
apparently, the Office felt unconstrained by either the CAA or Senate 
oversight in pursuing that objective.
    In its reauthorization of the CAA, this subcommittee should 
consider adding provisions that will prevent this kind of abuse in 
EPA's implementation of the Act. Congressional intent would be better 
served by the creation of some type of barrier to preclude EPA from 
claiming ``joint statutory authority'' to develop CAA regulations, or 
to use CAA regulations as an outlet for unauthorized policy 
initiatives, particularly those that run counter to the intent of the 
Act.
Implementation and Compliance
    Ultimately, the efficacy of any regulatory action is tied to its 
implementation. Successful implementation is the means by which 
compliance with a rule is achieved and maintained and by which 
environmental gains are realized.
    The HWC MACT rule, as noted above, is extraordinarily complex, 
almost punitively so. Its complexity is not linked to positive 
environmental or public health outcomes; but only encumbers the 
implementation of the rule. It is regulatory burden that has been laid-
on for its own sake. Early in the HWC rulemaking, in 1996, EPA 
conducted several public meetings during which it touted the extent to 
which the rule would be designed to simplify and consolidate many 
requirements of the existing RCRA rules that governed hazardous waste 
combustors. EPA claimed that the discomfort and expense of the 
stringent standards the Agency intended to develop would be offset by 
more efficient, less redundant, and simpler implementation 
requirements. EPA did not fulfill its commitment. What we got instead 
are much more stringent standards and much more complicated 
implementation requirements.
    In its deliberations about CAA reauthorization, Congress should 
take into consideration that the current statute does not adequately 
compel EPA to use common sense in its rulemakings. EPA apparently needs 
Congressional guidance to force the Agency to more substantively bind 
itself to issuing common sense, uncomplicated implementation procedures 
and requirements. Congress should impress upon EPA the need to 
implement CAA rules in a way that encourages and even hastens 
compliance among the regulated community. Congress should let EPA know 
that successful implementation, pursued by cooperative and interactive 
means, would produce a higher rate of compliance at less burden and 
lower cost. Congress should charge EPA with the obligation to rely much 
more on assistance than on enforcement to ensure compliance and give 
the Agency the tools necessary to carry out that task.
Energy Recovery
    Since the mid-1980's, the US cement industry has productively used 
millions of tons of hazardous waste as fuel in cement kilns. Congress 
has made clear in other statutes (e.g., RCRA) that it is 
environmentally preferable to recycle the value of waste materials than 
to destroy or dispose of them. The benefits provided by recovering 
energy from wastes in existing manufacturing processes that were 
enumerated at the beginning of this testimony are real. Fossil fuels 
are conserved. Air pollution is significantly decreased. And waste is 
converted to a productive asset. It is clearly a win-win proposition.
    But the commercial hazardous waste incinerator operators didn't see 
it that way. Until the early 1990's they had enjoyed a near-monopoly in 
the hazardous waste combustion market. Their reaction to what they 
perceived as emerging competition from cement kilns was to aggressively 
lobby EPA to increase the regulatory burden on their cement industry 
competitors, thus increasing their costs and, as a hoped-for byproduct, 
reducing their presence in the hazardous waste thermal treatment 
market. Their mantra was ``level the playing field,'' despite the well-
known fact that cement kilns were newly subject to the BIF rules, which 
were far more comprehensive than the RCRA Subpart O standards for 
incinerators. The incinerator companies, primarily via their trade 
association, the Environmental Technology Council (ETC), finally began 
to see their lobbying efforts gain traction in the early days of the 
current Administration. After several closed-door meetings with 
incinerator operators early in her tenure, Administrator Browner seized 
upon ETC's rhetoric and initiated her ``Hazardous Waste Combustion 
Strategy'' in May 1993. That immediately resulted in EPA abandoning its 
vigorous defense of the RCRA BIF rules in the D.C. Circuit and produced 
an out-of-court settlement with ETC that, among other things, committed 
the Agency to issue tighter regulations on cement kilns that recover 
energy from hazardous waste. (See CKRC Comments on the Proposed HWC 
MACT Rule, Appendix H. August 19, 1996)
    In its zeal to regulate cement kilns with much tighter emissions 
standards in the HWC MACT rule, EPA acted as though it was 
unconstrained by the CAA from making decisions that were specifically 
aimed at reducing the capacity cement kilns to recover energy from 
hazardous wastes. As cited above, the Administrator set EPA upon a 
course to use the HWC rule to stop ``allowing competing cement kilns to 
undercut the commercial incinerators.'' And that's just what the Agency 
did. It established exotically expensive beyond-the-floor standards and 
then specified that cement kilns could achieve compliance with those 
standards by ``feedrate reduction,'' i.e., by burning less waste for 
energy recovery. (Because EPA mandates that the waste must be burned, 
if cement kilns burn less waste, incinerators will burn more waste.) In 
its formal comments on the proposed rule, CKRC aggressively challenged 
EPA's decision and, in oversight communications, members of this 
Subcommittee also emphatically objected to the Agency's approach. In 
response, EPA claimed on the one hand that it was not obligated to 
consider the HWC MACT rule's impact on energy recovery capacity; and, 
on the other hand, that it rejected our industry's data and information 
as incorrect (i.e., not in conformance with EPA's analysis).
    It ought not to be so easy for EPA to completely disregard the 
important environmental ramifications of recovering energy from 
millions of tons of waste. We believe the CAA should be amended to 
specifically support and encourage energy recovery and other recycling 
activities that have been shown to directly benefit air quality and 
reduce greenhouse gas emissions. EPA should be barred from taking any 
regulatory action under the Clean Air Act that impairs, reduces, or 
otherwise adversely affects energy recovery technologies that have 
demonstrable environmental (and economic) benefits. Conversely, the CAA 
should require that EPA take affirmative steps to promote and encourage 
such technologies. CKRC hopes this Subcommittee will be inclined to 
fill this void in the Clean Air Act.
Conclusion
    The Subcommittee today has a rare opportunity to begin afresh its 
analysis of the Clean Air Act as it contemplates reauthorization. Our 
recent experience with the MACT program dictates that Congress should 
be vigilant of several points in dealing with this section of the Act. 
First, Congress should make clear the findings necessary to go beyond 
the MACT floor in setting emissions standards. While CKRC believes the 
law already adequately requires EPA to make cost and other findings to 
justify standards more stringent than the floor, Congress should take 
the opportunity of reauthorization to make the importance of cost and 
risk considerations even clearer to the Agency. Second, Congress must 
make clear that reducing feed to a process is not a control technology 
or a gauge of the best-performing sources, that it does not amount to 
an application of sound science, and that it does not promote 
technological advancement in accordance with the intent of the Clean 
Air Act. Third, Congress should take steps to guard against the MACT 
program being used as a thinly veiled attempt to reallocate market 
share or make production decisions for the regulated community. Fourth, 
Congress should remind the Agency that neither the regulated community 
nor the environment are served if rules are implemented in inflexible 
ways. Rather, common sense in implementation makes compliance more 
likely and less expensive, and better protects human health and the 
environment. And finally, Congress should ensure that the CAA 
accommodates and encourages proven energy recovery technologies and 
prohibits EPA from actions harmful to the perpetuation or expansion of 
those technologies.
    Thank you again for this opportunity to testify before the 
Subcommittee. I look forward to answering any questions you may have.
                                 ______
                                 
                 Cement Kiln Recycling Coalition (CKRC)
                               appendix h
CKRC's Concerns with the underlying policy choices and motivations 
        which give direction to the proposed rule
    As these comments demonstrate, it is obvious that EPA's proposal is 
based upon many legal, policy and technical choices that are 
unprecedented and of questionable validity (if not plainly illegal or 
invalid). At every opportunity, EPA has chosen a path that will lead to 
exceedingly stringent, onerous and expensive requirements for cement 
kilns that burn hazardous waste. It is apparent that this has been a 
result-oriented process. That is, EPA's prime motivation has been to 
impose great additional costs on cement kilns, and EPA has crafted MACT 
and RCRA legal, technical and policy choices to support this pre-
ordained result.
    As shown below, prior to May, 1993, EPA had steadfastly defended 
the current BIF rules as fully protective of human health and the 
environment and had stated several times that they are sufficiently 
conservative to allay any rational concerns over ``indirect'' exposure 
risks. Moreover, EPA Regions and the State of Texas have recently 
confirmed these points. Also R-VII RA letter of 7/17/95 to Ms. Mary 
King: ``EPA believes the requirements of the BIF rule are protective of 
human health and the environment.''
    Rather, two related rationales quite clearly are driving the 
proposed cement kiln standards. They are in fact the only rationales 
that can provide a cohesive logical explanation for what would 
otherwise be irrational Agency behavior:
    1. EPA is being driven from the top to make hazardous waste 
combustion a more expensive and less attractive option in a misdirected 
attempt to force U.S. industry to reduce its generation of hazardous 
waste (``waste minimization'' or ``source reduction''); and
    2. Among the competing forms of hazardous waste combustion, EPA's 
leadership has most obviously favored commercial incineration interests 
against cement kilns. EPA's leadership is in fact attempting to aid the 
incinerators by ``leveling the playing field'' vis-a-vis cement kilns 
on the pricing front.
    As we will show below, these twin driving rationales are beyond 
EPA's legal authority. When EPA's stated MACT and RCRA legal and policy 
choices are seen in this light, it makes them all the more 
fundamentally flawed and unacceptable. EPA is simply trying to achieve 
its unauthorized goals of source reduction and playing-field leveling 
by stretching its MACT and RCRA legal theories to unacceptable lengths.
    First, we will present a brief review of EPA's development of rules 
and policies. Second, we will review the evidence of EPA's favoritism 
toward commercial incinerator interests. Third, we will show that the 
most basic activities and policies that appear to be driving EPA's 
proposal are contrary to law, and they taint all the basic MACT and 
RCRA legal positions articulated by EPA in support of its proposal.
2. EPA Political Preferences for Commercial Incinerators
            a. Competition Between Cement Kilns and Commercial 
                    Incinerators
    Many types of common industrial wastes are accepted and safely 
treated by both cement kilns and commercial incinerators. They are in 
competition for a significant amount of the same ``market share'' for 
treatment of this waste. Cement kilns have an inherent market 
advantage, as cement kilns use HWDF as a replacement for fossil fuel 
that would otherwise have to be purchased, and cement kilns obtain most 
of their revenues from their cement product that is sold in commerce. A 
commercial incinerator makes no product, however, and burns hazardous 
waste for purposes of destruction rather than as a valuable fuel 
replacement.
    Cement kilns can readily pass on the savings to their industrial 
waste generating customers. For many types of industrial hazardous 
waste, the industrial generator can save a significant amount on its 
waste treatment costs, and the wastes will be treated equally if not 
more effectively, by sending them to a cement kiln as opposed to a 
commercial incinerator facility.
    There are thus great benefits to the burning of hazardous waste in 
cement kilns. The environment benefits because the kilns provide 
capacity to safely treat many of the nation's industrial hazardous 
wastes. The nation's precious and limited natural resources benefit 
because fossil fuels that would otherwise be burned are replaced by the 
energy-bearing HWDF. American industry benefits economically by having 
an option to meet its environmental legal requirements that is far less 
expensive than the commercial incineration option. Moreover, the option 
of cement kilns burning waste benefits conditionally exempt small 
quantity generators (CESQGs) since an economical and environmentally 
safe alternative to disposal is offered.
    The fact that cement kilns provide such a superior economical and 
environmental alternative to commercial incinerators has led to a 
situation in which cement kilns have far surpassed commercial 
incinerators in capturing markets for many types of hazardous wastes in 
the last few years. This has in turn caused some leading commercial 
incineration companies to engage in aggressive tactics to attack cement 
kilns burning hazardous waste.
            b. AFRTT, ETC. and Their Allies
    One such organization is the ``Association For Responsible Thermal 
Treatment'' (``AFRTT''). AFRTT has hired three formerly elected 
officials to serve as ``co-chairs'' to spearhead those anti-cement kiln 
efforts. One of the three co-chairs, and most visibly active, is James 
J. Florio, recently the Governor of New Jersey. AFRTT, its member 
companies (principally Rollins Environmental Services, Inc., the 
nation's largest commercial incineration company), and other 
associations of commercial incinerator companies have initiated a 
vicious and wholly unprincipled.war against cement kilns on many fronts 
for several years, and the war has intensified greatly in the last 2 
years.
    Simply put, AFRTT has used the regulatory arena in which to fight 
its market battles. The cement industry has burned more hazardous waste 
than the commercial incineration industry in the past 2 years. 
Consequently, the incinerators interests have used environmental issues 
in an inaccurate manner in an attempt to re-gain market share.
    The more traditional litigation arm for the commercial incinerator 
companies is now known as the Environmental Technology Council 
(``ETC''). This litigating association's name was changed to ETC in 
1994. Before that, ETC was called the Hazardous Waste Treatment Council 
(``HWTC'') for a number of years.
    One tactic AFRTT, ETC/HWTC, and Rollins have long employed is to 
help create and/or support so-called ``citizens groups'' to publicly 
front the incinerators' competitive efforts to oppose cement kilns that 
burn HWDF and to provide the incinerators' ``standing'' to sue in 
Federal courts.
    For instance, the American Lung Association received two AFRTT 
``grants'' of $110,000 and $150,000 in 1994 and 1995. Even though 
cement kilns burn hazardous waste just as safely and efficaciously as 
commercial incinerators, and are more stringently regulated, the 
American Lung Association (ALA) has used the AFRTT grants to direct 
funds to local chapters for the purpose of opposing cement kilns 
burning hazardous waste. Not surprisingly, ALA has never initiated a 
similar program to oppose commercial incinerators burning hazardous 
waste.
    There can be no question that these ``citizen'' groups have been 
formed to oppose the burning of hazardous waste in cement kilns, and 
that issues of relative stringency of environmental standards are 
secondary if not irrelevant concerns to these groups. A leader of one 
of the most vocal of these groups--the Huron Environmental Activist 
League (HEAL)--has stated in a newsletter to similar groups that HEAL 
``was formed in 1991 to oppose the burning of hazardous waste at the 
Lafarge cement plant in Alpena.'' Attachment 2. This HEAL leader 
utilized the imagery of war and the emerging militia movement in the 
United States to bolster the troops' morale:
    When it crystallized for me that this cement kiln incineration war 
was not going to be a short ``firelight'' but instead a protracted, 
grinding and dirty conflict that would change boys into men and girls 
into women in a hurry and those who wouldn't or couldn't grow up, 
including myself, would be casualties upon whose forgotten bones some 
other warrior someday might raise the flag of victory . . . at that 
point, I promised myself that I would not become a casualty. I had 
already lost much and some of what I lost is sadly irrevocable.
    The war is no longer isolated local or regional ``nimby'' 
skirmishes. It is a civil war. Government ``for the people'' is at 
stake, and we all have to survive locally to get the job done on the 
national front.
    In Michigan the war is raging.
    (emphasis added).
    This ``war'' has been a coordinated campaign by the citizens 
militia and the commercial incineration interests, and the coordination 
has manifested itself in national litigation and rulemaking efforts, as 
well as in local campaigns. In the same document on the status of the 
war, the HEAL leader further stated:
    With every local battle won the entire theater of war shifts in our 
favor. In the last year and a half there have been victories that would 
have been unthinkable 4 years ago . . . like the eight non-compliant 
BIFs losing interim status as a result of the Citizens Petition, Holnam 
abandoning their plans to burn in Montana, the vacating of Tier III and 
the suspension of burning in Alpena, the imminent fall of waste-burning 
at National Cement in Lebec, California, the EPA Roundtables and the 
CKD Report to Congress, the ARTT[AFRTT]/Lung Association grants, and on 
and on.
    The reference to ``BIFs losing interim status as a result of the 
Citizens Petition'' refers to one such coordinated effort. On January 
31, 1994, HEAL, Desert Citizens, Adans, and the commercial 
incinerators' ETC (then HWTC) filed a ``Petition For Administrative 
Action to Cease Hazardous Waste Burning'' with EPA against several 
cement kilns that were then burning or proposing to burn HWDF. This 
petition did not seek to impose any particular standards on such kilns. 
Rather, as its title indicated, it was simply aimed at stopping the 
kilns from burning hazardous waste.\5\ EPA granted the relief the 
petitioners sought in some cases and denied it in others.
    \5\ The petition did not attempt to stop kilns from applying for a 
permit to burn hazardous waste under RCRA, but inasmuch as this permit 
process takes many years, each location where the petition was 
successful would be sure to stop hazardous waste burning for a long, 
indefinite time.
    The reference to the ``vacating of Tier III'' refers to the result 
of litigation efforts by citizens groups and the ETC (then HWTC) in 
Horsehead. In that case, the groups jointly sought review of EPA's BIF 
Rules that regulate the burning of hazardous waste by cement kilns and 
other types of furnaces and boilers.
    The reference to the ``ARTT[AFRTT]/Lung Association grants'' refers 
to the fact that the commercial hazardous waste incinerator interests 
have sometimes even openly and directly funded citizens groups who will 
oppose cement kilns burning hazardous waste fuel--in addition to 
providing them legal representation through commercial incineration 
industry staff and outside counsel.
            c. Political Favoritism to Incinerators at Top Levels of 
                    EPA
    It has become obvious over the last 3 years that at the highest 
political levels of EPA, there is great favoritism and access for the 
commercial incinerator interests in their war against cement kilns. One 
good example is EPA's process in issuing its recent ``determination'' 
for cement kiln dust (CKD). 60 Fed. Reg. 7366, February 7,1995. For 
groups whose primary interest is simply to stop the burning of 
hazardous waste in cement kilns, it is entirely logical that they would 
push for full Subtitle C regulation of CKD in an uncompromising manner. 
As EPA has found, the costs of such controls would be exceedingly 
burdensome and oppressive, and many if not most cement kilns now 
burning HWF would likely be forced to quit doing so if full Subtitle C 
regulation over CKD were imposed. Id. Even if a kiln could afford to 
absorb such wholly unnecessary costs, it would (to the great 
satisfaction of the commercial hazardous waste incineration industry) 
substantially drive up the costs of sending hazardous wastes to cement 
kilns for safe and effective treatment.
    When EPA originally published the CKD Report and solicited public 
comment for the CKD Regulatory Determination, the agency properly held 
a round of meetings between EPA personnel and various interest groups. 
At the cement industry meeting with EPA, EPA personnel stated in no 
uncertain terms that after the deadline for public comment--March 
8,1994--EPA would have no further meeting with any interested parties 
in the CKD Regulatory Determination.
    This policy was breached almost immediately when EPA Assistant 
Administrator Laws met with an anti-cement kiln group organized and 
promoted by the commercial incinerators industry shortly after March 8. 
Cement industry counsel protested this meeting in a letter to EPA 
counsel on March 14, 1994. (Attachment 3). Cement industry counsel 
asked whether EPA had changed its policy and said that if so, ``we 
would certainly appreciate the opportunity to meet.'' To this day, EPA 
has never responded to the cement industry's March 14,1994 letter.
    CKRC later learned that there were two such meetings in March. The 
EPA summaries of such meetings (Attachment 4) show that the cement kiln 
enemies raised not only CKD issues but also lobbied hard for tough new 
MACT emission standards for cement kilns at their meetings.
    The AFRTT political connection with EPA leadership has continued to 
alarm CKRC. On May 9,1994, former Congressman and former Governor Jim 
Florio (now AFRTT co-chair) sent EPA Administrator Browner a ``Dear 
Carol'' letter explaining why--in his view--a recent U.S. Supreme Court 
decision required EPA to regulate CKD under RCRA Subtitle C. Attachment 
5. Mr. Florio's letter was on his new law firm's letterhead and nowhere 
in the letter did Mr. Florio disclose that he had recently become co-
chair of AFRTT.\6\
    \6\As shown In our counsel's letter to Ms. Browner of May 11, 1994 
(Attachment 6), we believe Mr. Florio's legal views were totally 
incorrect.
    On October 20, Mr. Florio wrote another letter to Ms. Browner. 
(This time he at least made clear he was writing on behalf of AFRTT.) 
He urged the Administrator to meet with him to discuss AFRTT's goal of 
providing for -''more appropriate environmental regulation of the 
cement kiln industry.'' (Attachment 7).
    CKRC wrote Ms. Browner on November 30, 1994 to express its concern 
over this new AFRTT attempt at an ex parse communication on the CKD 
issue. Attachment o. CKRC reiterated that EPA personnel had stressed 
there could be no more Meetings after the close of the comment period 
on March 8, 1994, and asked whether she was planning to meet with Mr. 
Florio. CKRC stressed that out of fairness, she should meet with the 
cement industry if she met with AFRTT. Neither Ms. Browner nor anyone 
else in EPA has ever responded to CKRC's November 30,1994 letter.
    On December 21, 1994, CKRC obtained a copy of an AFRTT press 
release. In that release, AFRTT announced that its representatives had 
met with Assistant Administrator Laws on December 21,1994. The release 
makes clear that AFRTT continued to press its CKD points as well as 
many MACT points with Mr. Laws during flus meeting. Attachment 9.
    On December 23, 1994, CKRC wrote yet another letter to Ms. Browner. 
Attachment 10. CKRC expressed its disappointment that she had never 
answered CKRC's November 30 letter and spoke of CKRC's ``grave 
concern'' over the obvious pattern that was developing of EPA giving 
preferential ex parse treatment to the commercial incinerator interests 
while totally ignoring CKRC's letters and requests for meetings.
    The situation portrayed in CKRC's letter to Ms. Browner of December 
23 turned out to be much worse than CKRC initially realized. Not only 
did Ms. Browner's staff arrange for Mr. Florio and his AFRTT people to 
meet with Mr. Laws on December 23, they also arranged for two 
additional ex parse to press EPA to regulate CKD from kilns that burn 
HWDF under full Subtitle C on the very same day! MACT issues were also 
prominent on the agenda for these meetings.
    One meeting was with a group of citizens promoted (and partially 
funded) by AFRTT that met with Mr. Laws. (In the war-time missive 
discussed above, the HEAL leader closed by saying: ``Hope to bring back 
good news from the D.C. meeting with Elliott Laws.'' Attachment 2.) 
Another meeting was a contingent from Rollins Environmental Services, 
Inc., a prime member of both ETC and AFRTT and unquestionably the most 
vicious attacker of cement kilns that burn HWDF. Rollins met with 
Deputy Administrator Hansen. The EPA summaries of such meetings are 
attached at Attachment 11.
    To this day, neither Ms. Browner nor anyone else at EPA has ever 
responded to CKRC's letter of December 23. Thus, EPA personnel had told 
CKRC representatives that after March 8, 1994 (the close of the public 
comment period on the CKD determination), there would be absolutely no 
more meetings with any interest groups to discuss the pending 
determination. The incinerator interests nevertheless were granted at 
least five separate meetings (possibly more) with high-level EPA 
personnel to influence EPA to take action on CKD that was extremely 
adverse to the cement industry and to conduct further MACT propaganda 
activities. CKRC's letters of protest and requests for rebuttal 
meetings went totally unanswered (and are unanswered to this day), and 
CKRC never obtained a single meeting with EPA during this period.
    Another example of this anti-cement kiln coordination between 
commercial incinerators and citizen groups--and EPA's blatant 
political-level favoritism toward the incinerators and their cohorts--
is the Horsehead settlement agreement described above. Even though they 
lost the one major issue they actually litigated in Horsehead the 
commercial incinerator interests were able to ``negotiate'' a 
Settlement Agreement with EPA to resolve several issues that were 
withdrawn from oral argument at the eleventh hour. Even though CKRC was 
a party in Horsehead and the Settlement Agreement has a significant 
detrimental effect on the cement industry, CKRC was never invited to or 
even informed about the closed-door meetings leading up to the 
Settlement Agreement, EPA never had similar meetings with CKRC, and EPA 
never even gave CKRC the opportunity to comment on the Settlement 
Agreement before it was filed with the court.
            d. EPA's Assistance to AFRTT In Playing-Field Leveling
    Another example of the EPA leadership's siding with the commercial 
incinerators relates to the so-called ``leveling of the playing 
field.'' First, through all of their dozens of political contacts and 
ex parse meetings, the AFRTT forces appear to have convinced the 
Administrator that commercial incinerators are more stringently 
regulated than cement kilns under current EPA rules. As shown above, 
nothing could be further from the truth. EPA's Director of the Office 
of Solid Waste recently confirmed this in a letter to AFRTT of May 
30,1996.
    Yet on July 28, 1995, the Administrator appeared on the MacNeil/
Lehrer News Hour on the Public Broadcast System television network. On 
that show, she stated:
    Let me explain what's happened in this country. We have one set of 
standards for hazardous waste incinerators. We have another, weaker set 
of standards for cement kilns, boilers, industrial furnaces--which are 
also burning hazardous waste. I think we should have tough standards 
for both. That's exactly what my rule would do. What David sought to do 
today in his amendment--which he lost would have been to prohibit me 
from setting tough standards on these facilities that are burning 
hazardous waste. Why should there be two different standards, a lesser 
standard for some?
    The Administrator was openly challenged by Congressman McIntosh 
(the ``David'' referred to in her statement), but she continued to 
insist that cement kilns were subject as a ``lower standard'' than 
incinerators.
    A well-known AFRTT slogan is that EPA should ``level the playing 
field'' in the economic competition between commercial incinerators and 
cement kilns. This slogan in part is used to argue (absolutely falsely) 
that EPA's standards for cement kilns are not as comprehensive and 
stringent as those for commercial incinerators, and that if EPA would 
force even more stringent standards on cement kilns, somehow the 
``playing field'' of the competition would become ``level.''
    More pointedly, behind the AFRTT ``playing field'' pitch is the 
desire to force greater costs upon cement kilns that burn hazardous 
waste. The desired result would be that much greater costs would force 
some of the AFRTT's cement kiln competitors to stop burning hazardous 
waste. For those that continued to burn, the point is that greatly 
increased compliance costs would translate into higher prices for 
generators and work to level the market pricing playing field to 
AFRTT's advantages.
    EPA's Administrator has apparently been influenced by AFRTT's 
pitches. As reported in news accounts, Ms. Browner explained that her 
current proposal for cement kilns ``will level the playing field for 
hazardous waste incinerators.'' BNA Daily Environment Reporter, March 
21, 1991, at A-33. Ms. Browner also vowed to stop ``allowing the 
competing cement kilns to undercut the commercial hazardous waste 
incinerators'' in pricing. Id.
    Another news account stated:
    In a conference call with reporters, Browner said that the new 
emission limits would level the playing field among hazardous waste 
incinerators and hazardous waste-burning cement kilns.
    BNA Daily Environmental Reporter, March 22,1996, at A-29.
    Certainly AFRTT has publicly recognized and thanked EPA's 
Administrator for her support. In a letter of May 23, 1996 to suppliers 
and customers, the President of Rollins (AFRTT's prime member) reviewed 
AFRTT's long-standing campaign to level the playing field in the market 
place vis-a-vis cement kilns. (Attachment 13.) The Rollins President 
made the following statements:
    Thanks in part to AFRTT's issues advocacy work in Washington, D.C. 
and nationwide, EPA Administrator Carol Browner recently proposed tough 
new emissions standards for all hazardous waste combustion devices, 
including cement kilns, under the Clinton Administration's National 
Combustion Strategy. The Administrator has acknowledged AFRTT's 
[AFRTT's] work as being the most important catalyst for quick issuance 
of this important proposal.
    The Rollins letter also mentions several ``AFRTT Accomplishments.'' 
Among those listed are:
      Issuance of EPA's proposal for Maximum Achievable Control 
Technology (MACT) standards for hazardous waste combustors; and
      Building of significant credibility with EPA through 
several years of meetings with EPA Administrator Browner and other 
senior EPA officials coupled with AFRTT's visible support for EPA 
initiatives.
    Moreover, AFRTT co-chair James Florio commended the Administrator 
for her close team-work with AFRTT, according to this news report:
    ``The EPA has done an excellent job in putting together this 
proposed rule which advances environmental protection while at the same 
time balancing the economic burden of regulation,'' Jim Florio, ARTT 
[AFRTT] co-chair and former New Jersey Governor, said in a March 20 
statement. ``Carol Browner, in particular, is to be commended for her 
leadership within the administration on moving this proposal ahead.''
    In prepared statements both ARTT [AFRTT] and EPA mentioned proposed 
amendments to EPA's fiscal 1996 appropriations bill that would have 
limited EPA' ability to implement the 1993 combustion strategy, of 
which this proposed rule is one component. The riders were strongly 
supported by the cement kiln industry. BNA Daily Environmental 
Reporter, March 21,1996, at A-35
    Another example of EPA's bias toward the commercial incinerators is 
worth mentioning. CKRC filed a rulemaking petition with EPA respecting 
hazardous waste fuel issues on February 10, 1994. The petition sought 
EPA clarification on some issues that are very important to the cement 
industry. To this days despite requirements in RCRA and EPA's own 
regulations the only acknowledgment CKRC has ever received is a 
``Return Receipt Requested'' green card. By contrast, the Hazardous 
Waste Treatment Council (now ETC) filed an anti-cement kiln petition 
with EPA 10 days earlier--on January 31, 1994. By April 4, 1994, EPA 
had taken final action on that petition that gave the commercial 
incinerators much of the relief (against cement kilns) that they had 
requested.

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